Written by
Jae Jun
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Just when I thought Mr Market was going to give a really big
buying opportunity for value investors, he continues to do what
he’s done all year.
Dance.
Dance and tease.
But I hope he falls flat on his face, at which time it’ll be our
turn on the dance floor.
I forgot to show the historical performances of the value
screeners in the
2014 performance update
.
Click to enlarge the image or just go to the
screener pagedirectly.
Historical Performance of Value Screens | Enlarge
Some Updates to the Historical Results
The historical results changed slightly.
It has become more conservative as I included simulations to
include more fees and limit how much of a single stock can be
held.
The table can definitely be improved by showing how many stocks
were held for a particular year. For portfolio that hold small
stocks, this really affects the performance of screens and
something to be aware of.
Color coding has been added where red indicates under
performance and green is over performance compared to its
benchmark.
Keep It In Context
These numbers all look impressive, but remember that they are
still theoretical results.
I try to factor in as real life costs into every screen, but
it’s not perfect.
Don’t blindly follow other strategies on the internet showing
huge returns which turn out to be unrealistic. I wrote about the
issues with the AAII stock screens
before.
Although the NNWC strategy leads the pack with a 19.39%
annualized return, the portfolio held less than 10 stocks many
times over the last 15 years. That’s not good.
I’ve attached a file below with information to all the 2015
stocks. There are:
12 NNWC stocks
8 NCAV stocks that trade below 2/3 of its NCAV
10 negative enterprise value stocks
15 stocks that meet the original Piotroski criteria
The best requirement is to hold 20 stocks.
Most Reliable Value Stock Strategy?
The value strategy with the best performance and reliabilty over
the past 15 years has been the Graham’s Formula valuation
screen.
This method looks for stocks trading below 2/3 of my
adjusted version of the Graham formula
.
It’s only underperformed 3 times over the past 15 years.
Impressive.
The original Piotroski screen and the Magic formula is close
behind.
Although the Graham Formulas method is the most reliable, it
obviously gives up returns compared to the “wilder” strategies like
negative enterprise value and NNWC.
The 2015 List – Download a List of 225 Value Stock
Opportunities
Here’s a list of 225 stocks you can go through over the
year.
Not every stock is investable, but it should provide you with
plenty of ideas throughout the year.
I like to just run
my stock analyzer
through each stock, do a quick check on the fundamentals
and then filter the list down further.
Doing all 225 by hand is painful so that’s where tools and other
services will help. Use your favorite site/service to help you if
you are keen to find undiscovered or overlooked opportunities.
But I’m confident that the
old school value analyzer
will really help you with this.
To download the file, simply click any of the buttons below to
unlock the download link.
(If reading via email or RSS, download from the website
directly)
Here is a look at 5 stocks from this years list.
Magic Formula Stock
When I look at the entire list of stocks in the Magic formula
stocks, a lot of them are associated with negative news.
Gun stocks, for profit education, political issues, and
Herbalife Ltd. (
NYSE:HLF) …
Logically, it’s tough to invest in these names at the moment,
but these hated stocks may prove to outperform everyone’s
expectations this year.
Blucora (BCOR)
Operates in 3 main segments of search, tax software and
ecommerce.
Their core business of search has really struggled ever since
Google Inc (
NASDAQ:GOOG) didn’t renew their mobile search
contract. The dynamic shifting nature of online and mobile search
has hit them hard.
However, their FCF ability is still amazing and a lot of the
negative news is already included in the stock price.
A lot of their fundamental numbers are down from previous
years.
Here’s a look from the ratios section of the OSV analyzer.
A relative analysis like this by comparing how the company has
done helps to give a picture of the business ups and downs. Puts
the current price into perspective too.
BCOR Valuation Ratios | Enlarge
But with a Magic formula yield of 11.8% and EV/EBIT between 8-9,
BCOR shows up in the screen results and is one of the more
promising stocks if you can wait for the negativity to get washed
out.
Low Expectations
When there is so much bad press baked into a stock, a tiny bit
of positive news will make it go up in leaps and bounds.
That’s the idea behind this screen which looks for larger cap
companies with good fundamentals trading at low multiples with low
expectations of growth.
ITT Educational Services Inc (ESI)
I don’t try to be contrarian or advocate being a contrarian just
for the sake of it.
ESI is definitely not for the faint of heart with all the issues
it’s having.
But with the company now being more transparent and willing to
work with the Department of Education, ESI could be a cheap buy in
the for profit space.
The company hasn’t filed for a while but based on the last
filing, and reverse engineering what market expectations are, the
current price holds severely pessimistic views.
Using the Reverse Graham Formula method from the Graham
Valuation section of the OSV analyzer, ESI has 1% growth projected
in its stock price.
Here’s I’m using the consensus analyst EPS target and then
playing with the growth number until it matches the intrinsic
value.
Reverse Engineering ESI’s EPS | Enlarge
Best Piotroski Criteria
The stocks in this list focus on three criteria from the
Piotroski score.
Current ratios > previous current ratio
Reduced shares outstanding
Positive net income
Nothing difficult or complex.
Dover Corp (DOV)
Dover fits the above criteria easily.
Current ratio has improved to 2.24 compared to 2.01.
Diluted shares outstanding is now 168.3M Co (
NYSE:MMM) vs 173.5m one year ago.
Net income is easily positive with a 9.7% margin.
Dover was also affected with the slumping of oil prices as 25%
of its revenues is related to the energy sector. The company offers
equipment to the drilling and production companies so they are not
affected directly by the price of oil.
FCF has dropped in the last year but the fundamentals are solid
with a fair valuation, if not a little overpriced.
I’d like to see the company drop below $70 before considering
buying some shares.
See what I mean with these ratios.
DOV Valuation Ratios | Enlarge
Perfect Piotroski Score Stocks
The list of stocks in this years Piotroski list look very
promising.
These are great businesses with wonderful fundamentals.
Valuation isn’t a focus here. It’s all about finding businesses
that continue to improve and meet operating excellence.
Snap-on Inc (SNA)
Take SNA for example.
SNA Stock Price Rewarding Excellence
When I run the numbers, it’s not cheap.
Even if I found this business one or two years ago, I probably
wouldn’t have bought it.
But quality has a way of helping the stock price continue on
up.
The business improvement and sound financials is something that
other companies should envy.
With only 5 analysts covering the company, it’s still relatively
unknown. Selling power tools, diagnostic software and vehicle shop
equipment isn’t sexy but it’s rewarding shareholders.
See the detailed Piotroski scores for SNA below.
A perfect 9/9 with the TTM numbers. The Piotroski score is
displayed in the “Quality” section of the analyzer and you can
drill down deep by going through the
accruals
, Altman scores, and
DuPont models
to really nail down what the quality is attributable
to.
SNA Piotroski Scores | Enlarge
Net Net Working Capital Stock
Looking for ugly cigar butt companies with one last puff?
Emerson Radio (MSN)
Current price as I write this is $1.01 per share with;
book value of $2.10/share
NCAV of $2.02/share
NNWC of $1.68/share
To really get into MSN and net net stocks, it’s best to apply a
net net checklist
.
Net nets have issues. Some are obvious and some are hidden.
In the case of MSN, there are
tax concernsbut given the current discount, you
need to decide how much of the downside is protected. Then protect
yourself further with proper asset allocation.
The current price is a whopping 40% discount to the NNWC and 50%
discount to NCAV.
MSN Net Net Numbers Shows Huge Discount | Enlarge
One of goals is to always analyze as many stocks as possible
every year.
Download a List of 225 Value Stock Opportunities
With 225 stocks, there’s a ton of quality stock ideas that you
can go through.
Download it by clicking any of the buttons from this
article.
And for non subscribers, if you want more info like