12 Most Undervalued Stocks in the Russell 1000, Ex-Financials

Below is a list of the 12 most undervalued stocks in the Russell 1000. All companies listed met The Applied Finance Group's (AFG's) Buy screen (*criteria explained below) and are in the bottom half of their sector in Market Value/Invested Capital (MV/IC) which by definition qualifies the companies as part of the AFG Value Universe. When identifying buy ideas AFG looks for companies with the most valuation upside compared to their sector peers, above sector median expected Economic Margin change, and a management quality score that reflects a management team following a wealth creating strategy.

Also shown in the table is each company's implied sales growth expectations along with their historical sales growth. All 12 of these companies have very reasonable expectations for growing their sales relative to what they have been able to deliver historically. Companies with reasonable expectations embedded in their current price have proven to be more likely to out-perform than companies with high expectations.

12 Most Undervalued - Russell 1000 (excludes financials)

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A brief description of AFG's buy criteria variables is below:

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.

Valuation Model – Using AFG’s modified discounted cash flow model to measure the intrinsic value of a firm compared to its peers.

Management Quality – Assess management’s ability to make wealth creating decisions.

Value Universe - Companies in the AFG universe, which have MVIC at the bottom 50% of the universe and have EPS estimates.

Market Value/Invested Capital - The firm's average total equity, debt and other obligations divided by net invested capital.

*AFG’s Value Expectation allows us to understand the imbedded Sales Growth, EBITDA Margins, and Asset Turnovers 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 displays the implied future sales growth of companies assuming their EBITDA margins and Asset turnovers stay at the 5 year median levels.

Comments

[ps55:]

Interesting to see a few energy related stocks on this list. I tend to agree, these are the most undervalued stocks out there...commodity prices will rise quickly on the first signs of economic recovery, and energy stocks should benefit most. Also favor Chinese stocks - particularly in that sector. marketfriends.com for more trade ideas and thoughtful discussion..

Apr 13 10:08 AM

[ETFtrader:]

This article was quite interesting. Some good ideas here, thank you.

Apr 14 12:18 PM

[wturner145:]

Back in 29 the market did not have safety nets of what exists today. I bought long in 33 and never worked another day in my life. It can be done! Stick with Kramer, he talks good stuff.

Apr 15 08:03 PM