Overvalued or Undervalued?

Q How can beginning investors know when a stock is overvalued or undervalued? — R.Y., Lancaster, Pennsylvania

A No one can know for sure. Seasoned and savvy investors might perform discounted cash flow analyses with spreadsheets and may crunch other numbers, too, but their results will still be based on assumptions and estimates. Even great investors will disagree on the fair value of a stock. Beginners can get a rough idea of how attractive a stock’s price is by comparing its current price-toearnings (P/E) ratio with its historical P/E range over the past five to 10 years. Coca-Cola, for example, was recently trading with a P/E around 29. A glance at its P/E’s past (available at morningstar.com, among other sites) shows that its average P/E over the past five years is roughly 23. That suggests that Coke’s stock may be overvalued right now. Of course, there’s much more to the picture. Potential investors should assess its strengths, weaknesses and competitive advantages, among other things, along with its cash, debt, profit margins and growth rates.

Q Is there a way to find out what Social Security benefits I will receive in retirement? — T.N., Watertown, Wisconsin

A The Social Security Administration (SSA) will mail an estimate of benefits to some folks once they turn 60. Anyone can set up an online Social Security account at ssa.gov/ myaccount, which will let you review your earnings history and check your estimated future benefits at any time. This can help you plan for when you want to start collecting, as you can get bigger or smaller payments by starting your benefits later or earlier than your expected retirement age. For more retirement guidance, try our “Rule Your Retirement” newsletter for free at fool.com/ shop/newsletters.