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- By Larry Alton
Whether you're a new investor or a highly experienced one, big name stocks are always the most intimidating. After all, Apple is currently trading above $160 per share, while Netflix is priced about $250. Those are unattainable prices for the average person and since stocks aren't a sure thing, like a bond or a savings account, it's a terrifying wager. If you lose, you could lose big. So if you're ready to take the plunge, how do you know if it's a good time to buy?
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The intrinsic value of AAPL
As with any other investment opportunity, there are a few key indicators that can help you identify opportunities, including overall economic conditions and business announcements, such as mergers and earnings reports, as well as ways to limit your risk.
Here are four pre-purchase considerations to help you make a smart investment decision.
Get a read on multiples
One of the standard rules for investing is that you don't buy stocks with high multiples. Experts refer to these stocks as "stretched" - they're growing in an unsustainable way. Right now, those experts have identified Apple (AAPL) as a good bargain, despite its high price, because it's selling for under 16 times its earnings numbers. Obviously that's not the only metric buyers should consider, but it's an indicator that Apple is well positioned for growth, that it's currently undervalued, even, regardless of other market trends.
Look for support
Another way to improve the stability of your big name investments is by purchasing them as an exchange traded fund (ETF). This is a good strategy in almost any circumstance because the goal of an ETF is to create a balance that allows the individual stocks to stabilize each other.
Some of the biggest stocks right now, and the ones that buyers benefit most from purchasing as ETFs, are Facebook, Amazon, Netflix, and Google - together known as FANG stocks. Components of the FANG group can be purchased as part of a number of different ETFs, including FDN, QQQ, and SKYY. These funds provide a good read on the larger state of the market, but also insulate investors from a big loss if a high priced stock goes south.
Read corporate growth
Unless something goes terribly wrong, stocks typically go up when a company plans a major expansion. For example, Disney has always been a strong player precisely because it owns multiple media and entertaining platforms, including both the film franchises and theme parks. So while Disney is down 9% year to date, its broad internal portfolio and low P/E ratio - currently about 15.5 - make it a strong investment despite those losses. Considering that Disney is planning to add a new streaming platform to its current offerings, there's growth in its future.