You can do it by discounting future cash flows or comparing P/E's among an industry, or a hundred other ways. But whatever the method, they all share one theme in common. It’s critical to have the patience to wait the trade out.
But patience is a virtue and in the end - whether you’re trading or training - over time you’ll come up a winner!
Of all the Fast Money traders Karen Finerman plays valuation most often. Following are the criteria she uses most.
Finerman’s Valuation Criteria
* P/E Historical and vs. Peers
* Cash Flow
* Balance Sheet: Debt
* Market Share
“Of all those criteria P/E is the most difficult to determine,” says Finerman. “What can a company earn on a normalized basis, that’s the key.”
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Trader disclosure: On Aug 19, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (C), (AGU), (BTU), (GS), (INTC), (MSFT), (NUE); Macke Is Short (TM); Macke Owns (MSFT), (WMT), (DIS), (CY); Najarian Owns (AAPL) And Is Short (AAPL) Calls; Najarian Owns (CSCO) Call Spread; Finerman Owns (GS); Finerman's Firm And Finerman Own (C) Leap; Finerman's Firm Owns (MSFT), (SUN), (TSO), (VLO); Finerman's Firm Is Short (SPG), (COF), (IYR), (IWM), (IJR), (SPY), (MDY), (BBT)