Question

Answer the following questions:

(1) Read an article on textbook page 298 and 299 "Searching for the Right Stock". Based on your opinion, which stocks (companies) are the right stocks to invest in 2013? Why?

(2) The initial public offering (IPO) price of Twitter Inc (Symbol: TWTR) is set at $26 per share. The closing price of TWTR on its first day (11/07/2013) trading on NYSE is $44.90, which is 72.69% higher than its IPO price. Based on your opinion, is $44.90 overpriced or fairly priced by the market? Why? If you compare Facebook (Symbol: FB) and Twitter, which one is the better company to invest, based on your opinion? Why?   

(3) If a firm sees future growth opportunities, should it pay more or less dividends to its shareholders in the current year? Expalin. If a firm is mature and does not see future opportunities, should it pay more or less dividends to its shareholders in the current year? Explain.

Textbook:
E. F. Brigham and J. F. Houston, Fundamentals of Financial Management: Concise 7th Edition, South-Western CENGAGE Learning. ISBN-13: 978-0-538-47711-6; ISBN-10: 0-538-47711-3

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(1) Read an article on textbook page 298 and 299 "Searching for the Right Stock". Based on your opinion, which stocks (companies) are the right stocks to invest in 2013? Why?

It is always easy to find some of the best performing stocks when you have the benefit of hindsight. In 2013, some of the best performing stocks were Boeing (BA), Nike (NKE), American Express (AXP) and DuPont (DD), according to an October 18th article . Of course, this list is not the same as provided earlier in the year : past performance is not guarantee of future performance. Their current (November 19) PE ratios are 24, 26, 19.5, 12.

One quick way to judge the fair value of a stock is by its Price to earnings ratio. The historical average PE ratio for the S&P 500 index is about 16. Therefore stocks trading far above this average may be considered overpriced and ready for a “correction” whereas stocks below this average may be considered undervalued and possibly ready to increase in stock price if the company fundamentals are strong and there is demand for the product or service it is offering.
While the stocks listed above do not have wildly high PE ratios, all but DuPont’s are above the average. A few other stocks with low PE ratios as of October are Kroger (KR) with a PE of 13.2 and Apache Corp (APA) with a PE of 13.8. ...

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