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ID-100142022An effective stock investment strategy comes with the realization that a small profit is better than a small loss!

Always remember this as you manage your portfolio. Also, remember you will not go broke if you lock in your profit at a lower level while the price of the stock continues to go up. While you will not achieve additional gains, it is far better to lock in your profit than hold it too long and take a loss. The amount of profit that you need is a personal decision. Do not be ashamed to lock in a profit when you feel that your downside risk is greater than your upside potential.

Elsewhere on this site, I have told you that buying a stock and just holding it forever was probably not a wise strategy. The problem with this “Buy and Hold” strategy is that you weather all the bad times while trying to take advantage of the good times. If the stock stays flat over the course of a year after growing 10% the previous year, you only make 5% over 2 years, and that is probably not robust enough. Inflation takes a 2-3% bite out of your spending power so over 2 years you lose 4-6%. You probably lost money on that stock investment or at least minimized its ability to increase your wealth.

You should evaluate your stock investment holdings regularly to see if you would buy the stock again given the information that you have today. While the stock may have been the right thing to buy yesterday (or last week/month/year), is it the right one to buy today? At a minimum, you should check your Fair companies that you invested in to make sure that they are not Poor companies now. Also, every company that you invest in should be profitable for the latest fiscal quarter and the latest fiscal year. You cannot confidently invest in a company that is not profitable.

This constant re-evaluation is necessary simply because there are other investments for your money. When one stock investment is flat, another company may do remarkably well. For nearly every economic period, there are companies that struggle and others that prosper. You do not need to keep your stock investment in companies that struggle. They can struggle without you. Put your stock investment money in companies that take advantage of the current economic climate.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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Company name The Gap Inc.
Stock ticker GPS
Live stock price [stckqut]GPS[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Fair
Sales growth Poor
EPS growth Good
P/E growth Fair
EBIT growth Fair

ANALYSIS

Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $37.3
Target stock price (averages with growth) $49.49
Target stock price (averages with no growth) $44.24
Target stock price (manual assumptions) $140.62

The following company description is from Google Finance: http://www.google.com/finance?q=gps

The Gap, Inc. (Gap Inc.) is a global specialty apparel company. Gap Inc. offers apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands. It operates in two segments: Stores, which includes the operations of the retail stores for Gap, Old Navy, and Banana Republic, and Direct, which includes the operations for its online brands, both domestic and international. It has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, China, and Italy. It also has franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores throughout Asia, Australia, Eastern Europe, Latin America, the Middle East, and Africa. As of January 28, 2012, the Company had 3,263 store locations, of which 3,036 stores were Company-operated and 227 stores were franchise store locations. In March 2012, the Company opened its store in South Africa.

 

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in The Gap Inc. as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

For owners of my book, “The Confident Investor” I offer the following analysis (you must be logged in to this site as a book owner in order to see the following analysis). If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.
[s2If current_user_can(s2member_level1)]
In order to assist you in using the techniques of this book, the values that I used when calculating the Manual pricing above were:

Stock price at the time of the calculation: $38.98

Growth: 0.11

Current EPS (TTM): $2.8

P/E: 48

Future EPS Calc: $4.71

Future Stock Price Calc: $226.47

Target stock price: $140.62

I hope that this makes you a better investor. [/s2If]