NYT

A focus list of buys and sells for our readers to use as a starting point when looking to make changes to portfolio. This list contains attractive and unattractive stocks from every major sector excluding financials. AFG's buy and sell lists have proven through time to provide a significant spread between the buys and sells helping you to identify winners and avoid potential torpedoes.

In yesterdays article we provided an update of the performance of our annual HOT STOCK LIST:

We also provided an update of the performance of the Toreador Large Cap Fund, TORLX which uses AFG’s Economic Margin Framework as part of its investment philosophy.

As you may note, both have done very well!

Today we decided to provide a Buy/Sell list to VE’s registered visitors applying some of these same investment principles: Economic Margin, Management Quality, and a company's Percent to Target (the deviation between a stock's current trading price and its current default target price according to AFG).

Below is a preview of the list which includes a Buy/Sell Recommendation on each Stock. The complete list, accessible to Value Expectations registered users, contains around 500 Stocks.

S&P 500 Rank (Preview) - August 11th 2009
Ticker	Company	Price	Recommendation
DRI	DARDEN RESTAURANTS	32.61	Strong Buy
KR	KROGER CO THE	20.93	Strong Buy
WLP	WELLPOINT INC	51.9	Strong Buy
AOC	AON CORP	40.55	Buy
FLR	FLUOR CORP	57.49	Buy
PCG	PG&E CORP	40.36	Buy
AMT	AMERICAN TOWER CORP	32.37	Neutral
IRM	IRON MOUNTAIN INC	28.85	Neutral
NOV	NATIONAL OILWELL VARCO	37.1	Neutral
BEN	FRANKLIN RESOURCES INC	92.13	Sell
EXPD	EXPEDITORS INTL WASH INC	33.04	Sell
QCOM	QUALCOMM INC	45.74	Sell
JDSU	JDS UNIPHASE CORP	5.93	Strong Sell
MWW	MONSTER WORLDWIDE INC	14.9	Strong Sell
NYT	NEW YORK TIMES	8.1	Strong Sell

Source: The Applied FInance Group

To download the complete list click here.

As some investors may believe the market is starting to show "signs of recovery", many of the over 200 institutional firms The Applied Finance Group (AFG) works with can always take advantage of identifying mispriced securities. While some of AFG’s clients might have a specific focus on growth or value, most subscribe to the practice of buying growth at a discount (growth at a reasonable price GARP) and avoiding  “value traps.”

In October 2008 AFG released the study, Then and Now, discussing the low expectations priced into the market "Today many world-class franchises are available at expectations reflecting a very bearish future. Over 150 companies in the S&P 500 (industrials) have negative sales growth expectations embedded into their current market valuations". Following that study AFG issued another study, Analyzing Market Troughs and Rebounds, which pointed out that historical market recoveries have been typically dominated by value stocks.

Whether you are looking for value or more growth oriented securities, we have provided a list of  companies in various asset classes, Large Cap Growth, Large Cap Value, Small Cap Growth, Small Cap Value that are currently on AFG’s Buy and Sell list. If you are a professional investor and would like to view a complete buy and sell list or take a trial of AFG's valuation tools CLICK HERE.

Monthly Buy/Sell list Across the Market
The Applied Finance Group 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 4,500 covered securities. By using AFG’s proprietary criteria, AFG publishes a monthly buy/sell list to provide clients with a refined focused list as a starting point for all investments. This focus List of stocks has outperformed the market on an annual basis by greater than 10% with our buy portfolio and underperformed the market by 10% with our sell portfolio. AFG clients then use Value Expectations to further analyze the expectations embedded in a security’s price (example of expectations embedded in the entire S&P500 over the next 5 years below) and to build out their own model to refine an intrinsic value of a company based on their own expectations.

 

 

Select Companies From AFG's Current Monthly Buy-Sell List

(Source: The Applied Finance Group)

Again, If you are a professional investor and would like to view a complete buy and sell list or take a trial of AFG's valuation tools CLICK HERE.

Model Portfolio Buy/Sell Results

To view how AFG defines the Large/Small and Growth/Value universe Click Here.

A brief description of some other of AFG's insights:

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.
AFG's Value Universe - Companies in the AFG universe, which have MV/IC at the bottom 50% of the universe and have EPS estimates.

Here are the 10 best and 10 worst performing stocks in the S&P 500 for the month of May excluding financials. We have provided the returns achieved by each firm during the month of May (5-1-09 to 5-28-09) along with a look at the valuation attractiveness of each of these firms going forward.

May Biggest Movers In S&P 500 (Ex. Financials)

AFG's default valuation is a great place to start when looking for potential equity investments as our valuation techniques have proven successful through time at identifying mispriced securities and helping our clients identify investment opportunities resulting in outperforming their chosen benchmark.

AFG's Valuation Model – Using AFG’s modified discounted cash flow model to measure the intrinsic value of a firm compared to its peers. AFG's Value Score - A score which represents the ranked percent to target (deviation between stock’s current trading price and AFG’s current default target price) or attractiveness (upside) relative to the universe. A Value Score of 100 is the most undervalued and 0 is the most overvalued company in the universe.

Click here for more information on our institutional tools and research.

Bloomberg provides a score for companies within the S&P 500 based on an average of all analyst ratings from the street. Below is a table highlighting companies with the best analyst ratings, largest increase in rating, highest price targets, and worst analyst ratings and the valuation attractiveness of each of these companies based on The Applied Finance Group’s (AFG) valuation model.

Companies within each of these groups are ranked from most attractive from a valuation perspective to the least attractive. VE.com will actively track the performance of these recommendations and see how they stack up to the analyst recommendations in each group. AFGview.com, AFG’s professional investor website allows you to compare any company using their rating versus the consensus ratings of the sell side. If you are interested in an analysis on a specific company, contact afgsales@afgltd.com.

 

Best/Worst Analyst Rated Companies (Bloomberg)

 

AFG's Valuation Model – Using AFG’s modified discounted cash flow model to measure the intrinsic value of a firm compared to its peers. AFG's Value Score - A score which represents the ranked percent to target (deviation between stock’s current trading price and AFG’s current default target price) or attractiveness (upside) relative to the universe. A Value Score of 100 is the most undervalued and 0 is the most overvalued company in the universe.

In our November blog, Bargain or Value Trap? New York Times, we discussed whether at a price of $5.34 is NYT a “Bargain or a Value Trap?”.  Our conclusion was that "NYT was no bargain".

Since then  NYT is trading at a price of around $3.50, down by over 34%, so we thought we would revisit the value expectations embedded into it's current stock price.

NYT Value Expectations at a price of $3.50

In our previous article, we discussed the need for an improvement in EBIDTA Margins.

Their downward trend in EBITDA Margins seems to continue in the most recent quarters. Once again, “NYT is no bargain.”

 Register to view our Special Studies and Market Reviews... its FAST and FREE!!

Here are the best and worst performing stocks in the S&P 500 for the month of January excluding financials. Compare the implied sales growth priced-in to justify the current trading price (VE Sales Growth) vs. what the company has delivered in sales growth the past 5 years (5 Year Median Sales Growth) to see if the expectations are realistic for the company to achieve. The more realistic the expectations are compared to what has been delivered the more likely the firm will be to out-perform.

 

Top 10 stocks in January (excluding financials) and Sales Growth Expectations

 

Worst 10 stocks in January (excluding financials) and Sales Growth Expectations

Today we highlight the New York Times Corporation. The Pricing Chart below depicts the stock price of the New York Times Corporation relative to the S&P 500 over the past year. Given the excessive sell off, and pessimism for its business, is NYT a “Bargain or a Value Trap?”

After enjoying a brief period of out performance early in the year, the stock has just been a massive loser since May. Lets explore why. This chart traces out NYT’s economic profitability, as captured by The Applied Finance Group’s Economic Margin. Unlike accounting earnings, Economic Margin, captures a company’s true profitability by accounting for on and off balance sheet assets as well as its overall risk. While under an accounting EPS view NYT has been profitable every year since 1998, from a more rigorous economic perspective the company has been destroying shareholder value since 2005.

The fundamental problem NYT faces is that it is selling less and earning less on each sale, as depicted in the following charts.

Starting in 2001, NYT’s EBITDA Margin declined significantly, and after an increase in 2002 it continued to decline thereafter. Its annual sales told a different story and highlights why corporate management teams often focus on the wrong performance indicators to explain the health of their companies. After a sharp decline in 2001, NYT’s sales steadily increased until 2005. Since then however, they have continually declined through today. While those fundamentals are troubling, if we can buy NYT at a price that more than reflects those problems,

So at today’s price of $5.34, is NYT a “Bargain or a Value Trap?” Lets explore.

We will answer the question using The Applied Finance Group’s proprietary Value Expectations process. Our goal is to identify the corporate performance a company must deliver to justify its current stock price. We will focus on 3 fundamental “value drivers” Sales Growth, EBITDA Margin, and Asset Turns to frame our valuation discussion. The chart above depicted NYT’s EBITDA Margins, and while they are currently below their 10-year average, they have been very steady at about 14.5% over the past three years. Interestingly, while NYT’s margins and sales have been declining over the past few years, it has become more efficient in its use of assets, as depicted in the chart below.

So given this information, lets make some assumptions about NYT’s future EBUTDA Margins and Asset Turns to understand the sales growth priced into its current stock price.

Assuming that NYT can maintain its near record level of .9 sales to asset ratio, combined with a 14.5% EBITDA Margin, the company must generate annual sales growth of 14.5% over the next 5 years. This seems like a very tall order for the firm, given that over the past five years, its median sales growth has been about 2%, and over the past 10 years it has never grown its sales more than 12% in a single year. Given how the New York Times has been losing readers possibly due to its editorial choices and certainly due to greater competition growing sales is an unlikely avenue for the company to deliver the performance required to justify its current stock price. More likely, if NYT is to justify its current stock price it will have to find a way to improve its EBITDA Margins back to their late 1990’s early 2000’s levels. Absent any significant movement in that direction, NYT is no bargain.