Money Management

My crystal ball says this stock is going up! 

The eternal mantra of stock investing is to “buy low and sell high.” And every day, millions of stock brokers and traders — from professionals to armchair day traders — try to do just that.

But how do they do it? How do they tell when a stock is undervalued enough to offer a chance at profit?

A good bit of it is luck (and maybe instinct). There’s undeniably an element of right place, right time when it comes to profiting off the stock market. Yet there’s also an art and, yes, a bit of science to it, as well.

That is to say, there are a few common telltales of an undervalued stock. If you can understand why and how stocks become undervalued, you can potentially use these signs to find them on your own.

Understanding what makes a stock undervalued

When you buy a stock, you pay the current share price. That’s the value the market has given that stock at a given moment.

The share price isn’t always indicative of the actual value of that stock, however. Some stocks are considered to be overvalued, while others are undervalued.

There are a few reasons a stock isn’t trading at its perceived value:

Demand: If a stock is popular — or has lost popularity — demand could be unusually high or low, impacting the share price in a way that isn’t congruent with the perceived value of the stock. (A good example here may be the so-called retail or meme stocks like AMC and GameStop.)Headlines: When a company makes headlines, their share price can be impacted. If those headlines are for the wrong reasons, their share price could drop below its perceived value.Reactions: The market can often be quite reactive. Investors may over or under react to certain news, like quarterly reports missing expectations.Speculation: A big part of investing is trying to predict the future. When investors think a company has a good potential for growth in the near (or even long) term, the stocks may become overvalued. But if the company’s future is in question, the stocks could become undervalued.

Essentially, anything can impact the share price and value of a given stock. Markets are fickle, and any stock can become overvalued or undervalued.

Identifying undervalued stocks

Since undervalued stocks can come from any industry and any company, actually spotting them in time to profit off them can be tricky. Here are a few tips from experts on how to find them.

Stick with what you know

Identifying undervalued stocks relies in large part on accurately valuing the stock to begin with. If you don’t know anything about the industry or company in question, it’ll be next to impossible for you to accurately value the stock.

For example, if you don’t know much about the auto industry, you’ll probably lack the background knowledge needed to guess if that niche electric car company has a bright future — or a dim one. And you’ll probably want at least some knowledge of the energy sector before you try to evaluate that solar panel company.

Crunch the numbers

There are a lot of various metrics used to value companies and stocks. Here are just a few to know about when looking for undervalued stocks:

Price-to-earnings (P/E) ratio: This is the stock’s current share price divided by its annual earnings. A low P/E ratio could be a sign that a stock is currently undervalued.Price-to-book (P/B) ratio: This is the stock’s current share price divided by its equity per share (which is based on the company’s assets). A low P/B ratio could indicate an undervalued stock.Earnings per share (EPS): This is a company’s profit divided by its outstanding shares of common stock. A high EPS tends to indicate a more profitable company.Return on equity (ROE): This is a company’s net income divided by the equity held by shareholders. This is a way to measure the company’s return on net assets, or how well it’s using its invested capital. A high ROE tends to indicate a more efficient company.

Dig into the company

As we went over in the previous section, there are a lot of reasons a company’s share price can be different from its perceived value. And many of those reasons aren’t as easily quantifiable as we may like.

So, go beyond the math. Look at the industry, the company, the headlines, and the employees. Any and all of these can provide key information for valuing a company.

For example, are people within a company buying up a lot of its stock? That could be a sign that they think it has a lot of value. And they may know better than those looking from the outside, in. On the other hand, if everyone is selling shares and fleeing — that could be a sign of trouble to come.

Predicting the future comes with risks

No matter how much information you dig up and how many numbers you crunch, there’s always going to be risk inherent in trying to predict the future of any stock. While there can also be a lot of rewards to correctly picking an undervalued stock, you need to weigh your own risk tolerance.

So, while it’s perfectly fine to try and find the next big stock, be smart. Don’t be unnecessarily risky with, say, your retirement funds.

What I like to do is keep a separate investment account for playing. It’s this account that I use when I want to trade individual stocks or follow an investment hunch. At the same time, my retirement funds are resting comfortably in a separate IRA where they can continue to grow, slow and steady.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More 

The ideal situation allows us to grow our money while keeping it safe. 

I’m an odd mix of fearless investor and Nervous Nellie. When it comes to long-term investing, I don’t allow anxiety or recession rumors to interfere with my investment plan. There’s simply too much evidence to show that history is on the side of the buy-and-hold investor.

However, I have a habit of acting like a new mother with my emergency savings account, hovering over it as if it’s going to disappear if I look away. Intellectually, I’ve always known it was ridiculous, but it wasn’t until I got into the habit of investing a portion of our emergency fund in Treasury bills that I finally relaxed.

Treasury bills

Now that I’m in the habit of putting our rainy day cash into Treasury bills (T-bills), I’m embarrassed it took so long for me to make a move. If you’re not familiar with how T-bills work, allow me to gush over the benefits.

Benefit No. 1

T-bills are available in increments of $100. That means if you only have $100 to invest right now, that’s okay. The maximum size T-bill you can purchase is $10 million (you know, in case that’s the size of your emergency fund).

Benefit No. 2

Spoiler alert: This is my favorite benefit. T-bills have a maturity date of one year or less. You can choose from T-bills that mature in four, eight, 13, 17, 26, or 52 weeks.

As someone who tends to imagine the worst possible case scenario, I choose four weeks and renew it for another four weeks when it matures. Let’s say our basement floods and needs immediate remediation — everything, from foundation repair to mold prevention.

Even if I’ve just renewed the T-bill, I know that the longest I’ll have to wait for it to mature is four weeks. In the meantime, I’ll use one of our rewards credit cards to pay for repairs.

Before the credit card hits the end of its billing cycle, chances are strong that the T-bill has matured. At that point, I have the option of not renewing. If I don’t renew, the Treasury Department will deposit the funds back into our bank account, and I can pay the credit card off in full.

Benefit No. 3

T-bill earnings help fight inflation. Stick with me here, because this bit can seem confusing. Once you understand how it works, though, you’re likely to find it brilliant.

Rather than pay interest, the government sells T-bills at a discounted rate but pays the full face amount upon maturity.

Let’s use my last T-bill order as an example. I placed an order directly through the Treasury Department website for a T-bill with a face value of $20,000.

Rather than $20,000, I paid $19,929.69. However, when the T-bill matures next week, it will be worth $20,000. That’s a little over $70 more than I paid. Prorated annually, that’s an interest rate of 4.52%.

The gain may not be enough to blow your hair back, but an extra $70 a month for doing nothing is unquestionably the right choice for me. And since I renew every four weeks, I prefer to think of the extra $840+ that a T-Bill will add to our savings account over the next 12 months (if interest rates stay the same).

Benefit No. 4

I don’t have to worry about losing principal, and I’m guaranteed a return. T-bills are safe because they’re backed by the full faith and credit of the U.S. government. They may not earn as much interest as other investments, but they are secure. And nothing is more important to me than security when it comes to our emergency savings account.

Benefit No. 5

There are no state or local taxes on interest earned. I don’t have to pay state or local income taxes on the interest earned from T-bills. I do have to pay federal income tax, but that’s okay because, again, it’s passive income.

I’ll be honest. I not only took my sweet time finding the right place to invest our emergency savings fund, but I’m slowly increasing the amount of money I move over to T-bills each month. There was no logical reason for me to wait, and if the past is any indication, I won’t ever regret making the move. I’ll only regret that it took me so long.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More 

Treat yourself to a new bank account. 

One tiny silver lining of the last year and change of rampant inflation has been the higher interest rates we’ve seen on some bank accounts. The rise in consumer interest rates both for borrowing money and for banking have been due to the Federal Reserve’s rate hikes in response to inflation.

The Fed doesn’t set those consumer rates; rather, the federal funds rate is what banks charge each other for borrowing. A higher federal funds rate often translates to higher rates on consumer financial products as well. This makes it a less-than-ideal time to borrow money. But if you’ve got some cash you want to keep accessible for the short term, or perhaps only tie up for a maximum of a few years, here are some great options for you.

1. Open a high-yield savings account

Savings accounts are kind of like personal finance 101, and it’s likely to have been your first bank account ever, when you were a child. Today’s savings accounts have come a long way from that, however. Many of the best savings accounts are offered by online-only banks, as opposed to more traditional brick-and-mortar banks. This means that they can pay an even higher APY (annual percentage yield) on the money you keep there, because the bank doesn’t have branches to maintain. And as of this writing, you could score an APY of 4% or more on your cash.

Most savings accounts are very easy to open and don’t have a minimum balance requirement, but you should know that it isn’t necessarily easy to withdraw cash directly from one, as many don’t come with an ATM card. In some cases, you may need to link a checking account to your savings so you can transfer cash to the checking account first, then make a withdrawal at an ATM.

2. Open a money market account

Money market accounts have features of both checking and savings accounts, and the APYs on them are up right now too. The best money market accounts are also sitting at 3%-4% APY. You might wonder why you should bother with one if you can get the same rate (or better) from a savings account. But unlike a savings account, your new money market account will come with check-writing capabilities or a debit card, without you needing to link it to another account. This is very convenient, and makes a money market account a good place to keep your emergency fund.

Note that some money market accounts have minimum balance requirements to avoid maintenance fees or earn the highest level of interest possible. And don’t think that just because you have a debit card means the account can be used to pay for your everyday purchases. Many banks still enforce the Regulation D provision that limits these accounts (along with savings accounts) to just six “convenient” transactions per month.

3. Open a CD

If you’ve got a chunk of cash you won’t need for a few years, consider opening a certificate of deposit account, or CD. In doing so, you’ll be agreeing to tie up your money for a set period of time (often six months all the way up to several years), and if you withdraw the money before the CD matures, you’ll lose out on some of the interest you’ve earned. It’s worth it to leave the money alone, however, as the best CD accounts are currently paying more than 4% for a 1-year CD.

What you lose in easy access to your money, however, you gain in a path to saving money well into the future. You can take your cash and split it up into multiple CD accounts with varying term lengths, and as each matures, roll that cash (now with interest added!) into a new one. This is called CD laddering and it’s a great way to ensure you get even more income from your savings.

If you’ve got some nice cash savings and want to take advantage of the higher interest rates we’re seeing these days, any one of these accounts could be a fit for you. Consider how much access you’ll need to your money (and when), and choose accordingly.

These savings accounts are FDIC insured and could earn you 14x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 13x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More 

Is one of them your home state? 

Most people know that auto insurance premiums are based on their driving history and the vehicle they own. But those aren’t the only factors that influence rates. Location is also important. This can affect a driver’s likelihood of accidents due to wildlife, bad weather, or encounters with uninsured drivers, among other things.

Unfortunately for residents of the five states listed below, their locations work against them, as they have some of the highest average auto insurance premiums in the country.

The five states with the highest average annual auto insurance premiums

The following five states have the highest average annual auto insurance premiums in the nation for 2023, according to our analysis of standardized personas:

Michigan ($5,766)New Jersey ($4,316)Louisiana ($4,280)Kentucky ($4,200)New York ($4,200)

This isn’t to say that all drivers in these states pay this much. There are some who pay more than this while others pay much less. Younger drivers, for example, typically see above-average rates due to their lack of experience on the roads and increased risk of accidents. Older drivers typically pay some of the lowest rates around, assuming they have a clean record.

Location within the state matters a lot, too. Those who live in areas with high traffic densities or high rates of auto theft typically pay more than those who live in quieter, more rural parts of the state.

How to score the best deal on auto insurance

The only way for a driver to know what they’ll pay for auto insurance is to get quotes. Here are a few tips to find the best possible offer.

Compare quotes from several companies

While all auto insurers tend to look at similar factors when calculating insurance premiums, each weighs these factors differently. Some penalize drivers more for an accident, for example, while others may pay more attention to the driver’s ZIP code.

Comparing rates from a handful of companies is the best way for a driver to ensure they’re not missing out on a great deal. Many auto insurance companies have online quote tools and enable applicants to save their quotes if they’d like to return to them later.

Seize every savings opportunity

Insurers apply most car insurance discounts to a driver’s rate automatically if they qualify for them. More discounts isn’t always a guarantee of a lower rate. But drivers who have a special circumstance, like being a member of the military or owning a hybrid or electric vehicle, can benefit from looking for insurers that have discounts targeted toward these groups.

In addition, car insurance companies are increasingly offering driver monitoring programs that policyholders can opt into to score an even lower premium if they want. Most of the time, there’s an upfront discount just for enrolling and drivers can earn additional savings if they demonstrate safe behavior behind the wheel.

Raise the deductible

Deductibles are the out-of-pocket costs drivers pay before their insurance company will pay anything toward their claim. Most companies give policyholders a choice of how much they want to pay. For those trying to keep their premiums down, a higher deductible is better. Just make sure to keep at least enough to cover the deductible in an emergency fund so there’s no need to take on debt when filing an auto insurance claim.

Even doing all the things above, it may not be possible to reduce auto insurance premiums significantly below the state or national average. This is often the case for those with accident histories. But keep searching for new deals once or twice per year and notify the insurer immediately if you’re moving to a different city or state. This could make quite a difference to a driver’s premium costs.

Our best car insurance companies for 2022

Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Kailey Hagen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

 Read More