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Fidelity’s Low Priced Stock Fund: Low Priced Stocks We Like - Walgreen Company (NYSE:WAG) and Microsoft Corp. (NASDAQ:MSFT)
Attractive Large-Cap Opportunities – Including Kohl’s Corp. (NYSE:KSS) Whirlpool (NYSE:WHR) and Colgate-Palmolive (NYSE:CL)
The Applied Finance Group (AFG) has a disciplined approach for identifying companies that are expected to outperform and underperform the market by using proprietary metrics and measurements that have been tested and proven through time. Because AFG’s research is fundamentally derived, AFG’s quantitative analysis spans across growth and value stocks, all sectors, industries, and market caps with over 20,000 covered securities globally.
When searching for Large-Cap ideas, AFG’s Buy/Sell list is a good starting place as it has proven to create a significant spread in performance between companies that come up on AFG’s buy list and those on the sell list. Further focusing on companies based on AFG’s proprietary screening criteria (Economic Margin, valuation, quality of earnings, and management’s ability to create shareholder wealth) will save investors time in their research process. The result is a target group of stocks that can help you outperform as well as identify potential torpedoes to avoid in your portfolios.
Below is a list of attractive companies in the S&P 500 from each major AFG sector (excluding financials). It serves as a focus list of companies for investors to begin with as they meet AFG’s criteria to be an attractive opportunity. They are more likely to outperform their sector peers and the S&P 500, the benchmark that AFG’s clients most often compare themselves with.
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Source: EconomicMargin.com
AFG's Valuation Metric – Measures the percent to target (deviation between a stock’s current trading price and its AFG current default target price). To derive the intrinsic value of a firm, AFG uses its proprietary Valuation Model (modified discounted cash flow model).
Economic Margin - A corporate performance measurement that addresses the gaps in GAAP, eliminating distortions caused by accounting policies to measure what a company is truly earning above or below their cost of capital.
Management Quality – Assesses management’s ability to make wealth creating decisions.
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AFG Recommendation Performance
9/1998 – 5/2009
Annualized Returns
Source: AFGView client databases from 9/1998 – 5/2009
Universe size: 4,000 to 5,500 firms
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Sales Growth Expectations for Attractive S&P 500 Stocks - Including Bristol-Myers Squibb (BMY), Pfizer (PFE) and Sprint (S)
In recent weeks we have written several blogs (S&P 500 sector stock watch, Attractive stocks under $35, with potential investment opportunities, Solid S&P Value Companies, Cheapest Stocks In the S&P 500), discussing investment opportunities within the S&P 500. These stocks ideas all had favorable scores under The Applied Finance Group's (AFG’s) investment criteria, which includes economic performance, valuation, earnings quality and management’s ability to create shareholder wealth, among other criteria.
Another way that AFG identifies potentially attractive investments is through the use of its Value Expectations interface, which helps investors get a better understanding of the expectations embedded into stock prices. This interface allows us to understand the Sales Growth, EBITDA Margin, and Asset Turnover a company has to deliver in the future to justify its current trading price. In theory and in normal circumstances, if the imbedded future performance is very conservative relative to the company’s historical performance, the stock is regarded as undervalued. The table below displays the implied future Sales Growth (“Priced-in Sales Growth) of the companies we have recently recommended in our recent blogs, assuming their EBITDA Margins and Asset Turnovers stay at 5-year median levels.
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Attractive Stocks Under $35 - S&P 500 Including Bristol-Myers Squibb (BMY), Harris Corp (HRS)
Fidelity has a fund called the Low Priced Stock fund that only contains stocks with a price of below $35 a share which has been successful in the past. Following a similar strategy ValueExpectations.com has published 2 articles containing attractive stocks under $35 as a starting place for investor’s looking for potential investment opportunities. The first low priced stock strategy blog outpaced the S&P 500 by over 58% since release in February the second article released in June has slightly underperformed the S&P 500 by -1.26%. Since this strategy has been well received by VE readers we decided to provide a new list of attractive stocks using the same strategy. Below is a list of S&P500 stocks that are currently trading under $35 a share that have passed through AFG’s investment criteria which looks for companies ranked in the top half of their sector in valuation, economic performance, management quality and earnings quality. All of the companies listed scored well in all of the required variables for AFG to deem a company attractive and backtests will show that all of these variables deliver a significant spread in performance between those that AFG sees as unattractive vs. those that look attractive from an AFG standpoint. To analyze your holdings using AFG’s research process click here.
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AFG's Valuation Metric – Measures the percent to target (deviation between a stock’s current trading price and its AFG current default target price). To derive the intrinsic value of a firm, AFG uses its proprietary Valuation Model (modified discounted cash flow model).
Economic Margin - A corporate performance measurement that addresses the gaps in GAAP, eliminating distortions caused by accounting policies to measure what a company is truly earning above or below their cost of capital.
Management Quality – Assesses management’s ability to make wealth creating decisions.
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