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Money Machine by Gary Smith

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INVESTMENT BENCHMARKS

My favorite definition of a growth stock is“a stock that somebody is trying to sell you.”

—BURTON CRANE

A stock’s intrinsic value equals the present value of its dividends, but value investors look beyond dividends to a firm’s earnings and assets. Earnings are important because these give firms the means to pay dividends, and assets are important because these are the source of earnings. Dividend-price ratios, earnings-price ratios, and asset-price ratios are sensible financial benchmarks, but none are infallible.

THE EARNINGS-PRICE RATIO

A stock’s earnings-price ratio (E/P), or earnings yield, is a rough estimate of a stock’s ...

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