Value Investing

Hi All,

Hope you all had a wonderful President's Day. My question this week is focused on using the P/E relative approach to screen for undervalued stocks. In the October 2022 Issue of the AAII Journal, we discussed how the price-earnings relative can often help establish benchmark comparisons to identify firms that have deviated from their normal valuation level. What are your thoughts and suggestions on this strategy?

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Jenna Brashear
AAII Community Manager
Chicago, IL
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The performance of the screen is good, but I've always been hesitant to look only rearward at trailing P/E. I like to look at Forward P/E which is based upon the earnings guidance from the company and/or analysts for the upcoming year.  A company 'may' have had an exceptional prior year, which wouldn't necessarily repeat going forward.  Or they may be be similar and consistent.

Edited: Ah, now I see what you're trying to do with it. I'm still not sure what value this approach offers over simply employing the P/E ratio as a screening factor.

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Rob Adams
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Jenna, I don't know what is happening with AAII's website. Whenever I go to the "community" area, the pull-down menu at the top says "communities to which I belong." But "Value Investing" isn't one of them. So I go to the pull-down menu again, and I click on "communities to which I belong or can join." Again, "Value Investing" does not appear in the list.

This area of the site has always operated strangely. I click on various options from the pull-down menu, and all sorts of odd lists appear. And clicking on the same option repeatedly sometimes gives me different results.

Also, it always seems to be a chore to find a place to make a new post (to start a new thread). One has to work at it.

I wish somebody at headquarters would review the operation of the community boards and make it work better. Can you help?