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One of the most difficult things, especially if you are looking for an investment with solid value, is figuring out how to avoid a trap. However, there are a number of value traps that are present in the stock market. The Motley Fool offers some information on five value traps, and what you should do about them:

1. The quarter-life crisis
These are real heartbreakers. You find a dominant company whose once-sky-high growth has stalled, and its shares along with it. “TechWidget Corp. is trading at only 15 times earnings right now, only half its five-year average!” you say. “Its earnings have doubled over the past five years, but the shares are down over the same time period. Sounds like a steal!” …

Instead of returning incremental profits to shareholders via dividends, such companies wreck shareholder value by chasing growth through non-core expansion and high-profile acquisitions. Oh, and the ill-timed share repurchases that exist primarily to juice per-share earnings and help sop up all that stock option-driven dilution.

Steer clear of flailing tech titans until they’re ready, willing, and able to follow the lead of a Microsoft (Nasdaq: MSFT) or an Oracle (Nasdaq: ORCL) into dividend-paying adulthood.

2. The soaring cyclical
Here’s the thing about cyclical stocks: Their P/E ratios are counterintuitive. They always look the cheapest when they’ve reached their priciest, and look priciest when they’ve reached their cheapest. …

But savvy investors know that cyclical companies’ profits mean-revert, which is why cyclical stocks’ P/E multiples stay low during booms and high during busts. In other words, you should be looking at cyclical stocks as their P/Es expand, not shrink.

3. The small-cap Methuselah
The six-year small-cap bull run that came crashing to a halt last year was a painful reminder of a little-known value trap: the small-cap Methuselah. …

Show me a company with a long, proven history of creating serious shareholder value, and I’ll show you a mid- or large-cap stock.

4. The too-high yielder
A company usually has a high yield (think above 7%) for one of three reasons:

• It has limited growth potential, so managers return as much cash as they can to shareholders. Think regional telecoms.
• The company is in a clear state of decline and investors expect a dividend cut. Think terrestrial radio or newspapers.
• The company is in a tax-advantaged structure that doesn’t allow it to retain much capital. Think business development companies, real estate investment trusts, or master limited partnerships.

Broadly speaking, a fat dividend is a good thing. There’s a fine line, though. At Motley Fool Income Investor, we’re looking for that sweet spot where an attractive payout meets rest-easy status.

5. The unopened book
Book values need to be adjusted — especially heading into and during recessions. Acquisition-happy companies inevitably end up slashing the goodwill they’d booked while making bloated acquisitions in the years previous. …

We’re only interested in good values if they also happen to be great businesses, companies with years of exceptional performance behind and ahead of them.

In the end, it’s up to you to look for true value. And you may not find it in the trend of the moment. In fact, you are likely to find that the investing trend of the moment offers almost no true value at all.

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The Dow is holding tenaciously to yesterday’s gains as bulls try to fend off the bears. So far, though, Wall Street is generally heartened by the renewed pledges from G20 leaders to continue to provide economic support in their respective countries. The Nasdaq is not doing as well, as it has slipped into the red, but the S&P is managing to hang on to its gains as well, remaining just in the black. There are hopes that governments, including the U.S. government will continue to support the financial sector until things improve. Investors are a little wary, though, of the upcoming overhauls to financial regulations.

Gold continues to gain

Gold prices remain above $1,100 an ounce, gaining along with the Dow. MarketWatch reports on the possibilities moving forward for gold:

But Fed officials are not expected to say much that would curb expectations that monetary policy will remain loose for the foreseeable future. Gold rallied along with stocks on Monday after global leaders signaled continued support for the global economy.

Gold for December delivery recently gained 40 cents to $1,101.80 an ounce. On Monday, the contract finished above $1,100 for the first time, after hitting an intraday record high of $1,111.70 in electronic trading.

Oddly enough, the U.S. dollar is managing to also hold its gains. Normally, the greenback moves inversely to gold prices, as well as dropping when stocks are gaining. However, the gains are not terribly promising, and the risk trade in forex trading has slowed as news out of the euro zone and Britain continues to disappoint. There are very real possibilities that overall dollar weakness is likely to continue.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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Kraft has been trying for several weeks now to take over Cadbury. However, the company has been repeatedly repelled. And today marks another attempt as Kraft launches a $16.5 billion hostile bid for the British chocolate maker. MarketWatch reports on the offer price for the deal:

The offer price is a 29% premium to the 90-day average price before Kraft first announced a potential bid in early September.

However, Cadbury shares have been trading above 750 pence since Kraft first proposed a deal and the stock, after an initial move lower, rose 1.2% to 767 pence.

Kraft, of course, believes that Cadbury could also benefit from a merger with the company, and Kraft believes that it could benefit from a well-known name. Kraft claims that Cadbury could remain relatively independent, and that the infusion of cash from  Kraft could help Cadbury.

Cadbury, however, remains convinced that Kraft is undervaluing the company. Cadbury believes its prospect for the future are quite bright, and that Kraft is not offering enough to reflect the current value and the future possibilities for the company.

It will be interesting to see how things turn out in this particular case, and whether Kraft will succeed. Cadbury remains adamant for now, and it could be that Kraft may increase its offering. However, the fact that Kraft is launching a hostile bid indicates that the foods giant is not ready to concede and offer more.

Cadbury stock is higher on the announcement of hostile bid, but that could just be due, in part, to the fact that equities around the world are higher this morning, including the FTSE 100.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.