When identifying possible sell/short opportunities (torpedoes), The Applied Finance Group (AFG) starts by running a screen using its proprietary Sell Criteria variables starting with Economic Margin. Economic Margin is a measure of corporate performance that identifies how profitable a company is by measuring how much the company earns above or below its cost of capital. In addition to corporate performance, AFG looks to identify those companies that are unattractively priced using our valuation model. Lastly, AFG evaluates how well companies run their business using its Management Quality score, identifying companies that have management teams that destroy wealth.
The 20 firms listed below all meet AFG’s Strong Sell Criteria. In addition, these companies all earn less than their cost of capital which means they earn a negative Economic Margin and all of these companies have a Z-Score (Altman Z-Score) or risk of bankruptcy in the next 2 years, that fall in the at-risk range. AFG has a track record of identifying winners and losers in the market.
If any of these firms are holdings in your portfolio, pay extra attention to these companies as they contain all of the characteristics of a bad investment and may be a potential torpedo lurking in your portfolio. AFG has proven successful since 1996 at identifying good companies as well as sell opportunities, providing a solid buy/sell spread.
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