PurpAnd

My money-loving alter ego has been featured on the Amateur Asset Allocator website. Please visit if you get the chance.

I’ve recently had a potentially life-changing opening of the mind. An awakening, if you will. Last summer, I purchased a stack of books from in an effort to replenish my dwindling stash of unread material. The purchase included fiction novels, some non-fiction, and a book on spirituality, Radiant Mind: Awakening Unconditioned Awareness. I’ll leave a review for some other time, but I do have a little to say about it.

For some reason, I let this book sit on the shelf for four months before opening it. I had bought it off of a recommendation from a novel I had purchased a few months earlier from Amazon. (You know how Amazon has that ‘maybe you’ll like these’ section?) The week of Thanksgiving I grabbed it for my flights across country knowing that I would be in the air for nearly 12 hours.

The book was tough to get into as a lot of the talk was about ‘nothingness’ and the absence of need and rejection. Pretty intriguing stuff now that I am 2/3 of the way into it (you’ll have to take my word for it). But that isn’t really the point. The real interesting part for me is just the fact that I enjoy reading it. I can relate to it, or I am at least open to try to relate to it.

I am very much a logical thinker. Until now, there hasn’t been a whole lot of room in my head for things that were not based on evidence. I guess I am just at the point in my life where my path is to see where spirituality fits in for me. I may not be ready for it and I will soon enough realize it. Or, I may be very ready for it, which is why something told me I had to read this book.

Anyway, I just wanted to throw this out there as somewhat of a start of my exploration. I also wanted to see if anyone else has had a similar experience. To see if any of my readers are spiritual in the sense that they strive for a connection with the energy that surrounds us. (I’m such a spiritual virgin that I don’t even know what to call it). Feel free to comment.

I’ve recently launched a new site with the intent of discussing money-related topics. I feel removing the money talk from the PurpAnd blog will better preserve the theme of general randomness.

If you’ve been interested in what I’ve had to say in the realm of financial matters, you can pop over to the new site, www.purpandmoney.com.

My main discussions will rotate around saving, investing, personal finance, and the economy. Hope to see you there.

The original post and intro to the site can be found here.

Some other new entries about Fiscal Responsibility and Credit Card Defaults can be found here and here.

Well it seems this was the natural progression. My posts on finance, investing, etc., have brought me to posting on individual stocks as I have received a few requests for tips/information on individual stocks.

I recognize that this topic may be a little uninteresting for some of you, so I promise I will mix it up in the next few posts.

The goal of this post is mainly to explain to readers what I consider when looking at a potential stock to buy. With this, I fully expect you will make suggestions on how I can further my analysis, as well as pose questions on my process. This is not intended to be a complete or extremely thorough stock analysis, but it gives you an idea of the kinds of ‘homework’ you can do when picking for your own portfolio.

The stock: MMM - 3M Company.

One of the first things I consider when looking for potential buys is the sector(s) I want to focus on. For example, in today’s market, it is pretty safe to assume that certain sectors (or kinds of businesses) will outperform some others. I’d expect over the next 12 months that car companies and retail stores will lag utilities and consumer staples/food product companies (think Johnson & Johnson, Kellogg, and Procter & Gamble).

In this especially tough market, I think diversity is an important element of a company’s business. So, I’ve chosen 3M, one of the more diverse conglomerates in the country.

Once I find a sector and stock I am comfortable with, I go to Yahoo Finance and start drilling down on my stock.

I look at Key Statistics, Competitors, Balance Sheet, and sometimes the Chart and Insider Transactions. Also important things to read are the recent news clips about the company. You don’t want to buy into the company if they’re facing some huge lawsuit, accounting problem, etc.

Key Statistics I focus on are:
- P/E Ratio - Price/Earnings ratio - this is the true price of the stock.
- Dividend Yield - how much will I be paid while holding this stock.
- Debt (a high debt/equity ratio is trouble in many cases)
And for shorter trade horizons, I’ll check the short ratio to see if it has a potential of being ’short squeezed’ up in the near term.

These numbers give me a basic feel for the stock.

When looking at competitors (for 3M this is Johnson & Johnson, Avery Dennison, and Dupont), I look at some key metrics:
- Quarterly Revenue Growth
- Gross & Operating Margins
- P/E
- PEG (this is a good one cuz it tells you how the price is compared to the expected growth. Any number near or below 1 is an indication it may be cheap; any number 2 or higher means expensive.)

3M is in the middle of the set of competitors with respect to growth and margins, but near the low end with respect to P/E and PEG. So the stock looks cheap compared to its competitors.

After looking at the competitors, I check the balance sheet to make sure asset appreciation has remained consistent/growing, and I look for the cash on hand and the assets versus liabilities. If the stock is not a speculative growth stock, assets better be higher than liabilities.

3M has had continued increases in assets over the past three years and total assets outweigh liabilities nearly 2-to-1.

Lastly, I take a look at the chart to see where pricing now relates to pricing from recent history. I am not a chartist so I don’t spend a lot of time on this, but for 3M, I notice the stock price hasn’t been at the current level since Summer 2002. At quick glance, it seems it is below many support levels and I believe there is now more pressure to move up than down (once the market turmoil settles, of course).

My conclusion based on this analysis is that 3M is a good candidate for a buy. If the price moves further downward, the yield will go up, making it even more attractive. Earnings are expected to be released next week and the projections are not expected to be good. If that results in a drop in the share price, I might use it as an opportunity to begin a position, with small purchases, and buying more if the price moves down further. Remember, when all else is the same, a drop in the stock price means it is going on sale. (As of Oct. 17, I did not own any 3M).

There you have it, a quick and dirty stock analysis. It is not intended to be an all encompassing guide for you to make your own picks, but rather a summary to give you some ideas on what to look at when reviewing your own potential buys. (Please note that some stocks require different types of analysis and this is just an example).

Good luck and happy hunting.

Remember that friend that I had lunch with last week? Well he read my post and emailed some additional insight into the market. He also included thoughts on investing in general and some comments on my writing. As much as I think I know, he kindly reminds me that I don’t know everything.

Here are some snippets of his talking points:

In response to my affluence post… “Making sure to spend considerably on depreciating items is still important to us. While spending on appreciating items typically enhances our quality of life in the future, spending on depreciating items typically enhances our quality of life now… Life is all about balance.. everyone’s idea of balance differs, but balance is important.”

Good point. Without this balance, life would be less fulfilling.

In response to Friday’s stock market post… “You mentioned that as stock prices fall, that is like saying the market is “on sale”… you know I agree with this principle, but it’s worth mentioning that stock prices falling without new information is equivalent to the market going on sale. We have quite a bit of new information that we didn’t have a year ago though… and this information is alarming and inarguably, at least in the short-mid term, game changing.”

True, and just to clarify, I didn’t include a sub-surface analysis in my initial post because I was trying to avoid being too technical for the general readers of this site (although I can see this discussion becoming a more frequent topic, if not its own page, in the future). Furthermore, it is important for my readers to know that it is not the actual dollar price of the stock that I was talking about. Rather, it’s the price-earnings (PE) ratio that has come down for virtually every stock since last year. My point… the market is selling at a relatively low PE compared to historical levels (as long as forward looking earnings estimates are and will be somewhat accurate… we’ll see). And while the information we have now may justify the PE contraction, price levels are much more appropriate now for the investor looking for a good entry point into the market.

If you have questions about what I read, where I get info on the market, or {gulp} my opinions, feel free to email me at andy@purpand.com. I will try my best to answer your questions without putting myself on the hook.

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