Description
Investors?often?use?the?price?earnings,?or?P/E?ratio,?as?a?way?to?gauge?the?relative?value?of?a?stock?in?relation?to
its?peers.?It?is?the?market?price?of?a?share?of?stock?relative?to?its?earnings?per?share.??The?more?positive?investors
feel?about?a?stock?s?future?prospects,?or?the?less?risk?they?feel?the?stock?has,?the?higher?the?stock?s?P/E?ratio?
(Keown,?2013,?p.?439).
Other?investors?view?a?low?P/E?as?a??value,??meaning?the?price?paid?for?the?stock?is?less?relative?to?the?earnings
generated?by?the?firm?itself.
Select?four?stocks?of?your?choice?that?are?diversified?across?four?different?sectors?or?industries.?Research?each
stock.
In?your?initial?post,?label?your?selected?stock?as??choice,??the?competitor?stock?as??peer,??the?industry
information?as??industry,??and?list?the?P/E?ratio?for?each?of?these?categories.?
Be?sure?to?use?CHOICE?&?PEER?(as?stated)
I?have?included?an?example?as?a?guide.?You?can?come?up?with?your?own?to?compare?but?here’s?a?few?I?was
interested?in:?Proctor?&?Gamble?(PG),?Wells?Fargo?(WFC),?General?Electric?(GE),?Microsoft?(MSFT),?AT&T
(T),?Verizon?Communications?(VZ)
Comment?on?your?findings.?Based?on?the?P/E?ratio,?do?you?believe?your?choice?stock?to?be?fairly?priced,?a
?value,??or?overpriced?as?compared?to?a?peer?and?the?industry?as?a?whole??Why?

The four sectors I decided to invest money into are the powerful sectors of items that are all necessities in the world today. Not only did I pick stocks with high P/E ratios, I also picked stocks that pay dividends. I like that they pay you quarterly funds that I like to reinvest. The sectors are Electric Energy, Computer Hardware & Equipment, Pharmaceuticals, and Production and Extraction of oil.
Choice P/E Ratio Sector Peer P/E Ratio Sector
Johnson&Johnson (20.3527) Pharma Vs Bayer AG 17.5734 Pharma
I chose to buy J&J over the competitor Bayer was an easy choice. I can honestly say you probably can not make a real bad choice, since both ratios are so close. I chose J&J on the count it did have a higher P/E ratio, but most of all it payed higher dividends and showed a steady stock price increase over the last three years.
Choice P/E Ratio Sector vs Peer P/E Ratio Sector
HP Inc (8.2275) Comp & Equip Apple Inc (12.1233) Comp & Equip
Choosing HP over Apple was also an easy choice for me. The main reason it was easy is due to the fact that Apple is priced so much higher per share then HP. I agree HP has a lower P/E ratio, but as you can see it was not a large differences in ratios. One can buy a quality stock for a much lower price. Both companies showed growth over the last three years, and the dividends are not so much an issue, since you obtain more shares. If you calculate it you would find that one can buy over seven times its peer. So you would receive seven times the dividends.
Choice P/E Ratio Sector Vs Peer P/E Ratio Sector
Marathon Petroleum (13.215) Production & extraction Exxon Mobile (26.1266) Production & Extraction
This was an other easy choice for me to make. I chose Marathon over Exxon simply for one major reason alone. Marathon has shown better growth over the last three years, while Exxon stock price has stayed constant over the last three years.
Choice P/E Ratio Sector Vs Peer P/E Ratio Sector
Exelon (17.1753) Electrical Energy Duke (19.2193) Electrical Energy
The main reason I picked Exelon over Duke, because the price of the stock is have the price and the P/E ratio is very close.
I know the importance of the P/E Ratio if it is high is a great measurement of stock strength. I on the other hand realized that the P/E ratio is not the definitive reason to buy. One may choose a competitor if the price of the stock is lower and has a high P/E ratio. I would also like to make sure the stock has shown growth over the last three years. I feel a company that shows growth over three years has proper management and is in touch with what consumers want. My last and final gage I use is the perception of the stock in the market. I check any news on the company, and I like to check my E-Trade account and see the rating of the stock according to the market. Once I verify all these items in conjunction with the P/E ration then, and only then I will buy the stock.

 

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