Seeking Catalysts

Q When someone refers to a company’s “catalysts,” what is she talking about? — B.G., Shenandoah, Iowa

A She’s referring to things that could cause a stock’s value to change.

Savvy investors aim to invest in healthy and growing companies whose stocks seem to be undervalued, because those stock prices can be expected to eventually approach (or exceed) their fair values. But when and why will the stock prices rise? It will often be due to positive catalysts. Thus, when studying a company, try to identify positive catalysts, which could be a strong earnings report, an expected acquisition, the launch of a new product, new legislation, new contracts, a legal victory, a new technology, a housing boom or the end of a recession, among other possibilities.

A catalyst for a biotechnology company could be Food and Drug Administration (FDA) approval of a promising new drug. There are negative catalysts, too, of course, that could hurt a company’s progress.

*** Q Where can I look up historical price-to-earnings (P/E) ratios online? — H.L., Rutland, Vermont

A A P/E ratio can give you a rough idea of how overvalued or undervalued a stock might be — especially when you compare it to the company’s average P/E ratio in recent years. A bunch of websites offer current and historical P/E ratios. For example, click over to

morningstar.com and enter a company’s ticker symbol up top in the “Quote” box. That will take you to a page offering lots of data on it. Click on “Valuation,” and you’ll be shown not only the current P/E ratio (as well as other valuation-related measures) but also the five-year average P/E. There’s even a “Forward” P/E, based on expected earnings over the coming year.