France’s SBF 120 - Most Attractive Stocks

Applied Finance Group’s (AFG’s) Economic Margin (EM) methodology (what a company earns above or below its cost of capital) has proven to be a very useful indicator of a company’s true economic profitability and is consistent enough to work across different companies, sectors, styles and even across countries. Since a company’s EMs and expected changes in EMs have proven to have a high correlation with market performance we have decided to analyze the companies within France’s SBF 120 index (120 most actively traded stocks listed on the Paris Stock Exchange including all of the CAC 40) to identify companies expected to improve their EM’s at a higher rate than their sector peers. The 10 companies listed are projected to have an EM improvement for next year better than sector peers as well as have an attractive valuation based on AFG’s valuation model and are rated better than unattractive based on AFG’s default investment opportunity signal.

The 10 companies listed in the table below are projected to have a better EM improvement over the next year than their sector peers as well as have an attractive valuation according to AFG's valuation model. In addition, these companies appear attractive based on AFG's default investment opportunity signal. Based on this relative analysis and AFG's assessment of corporate performance, the 10 companies below appear as most attractive in the SBF 120 index and look like they will be the most likely to outperform.

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Also, provided in the charts below is a look at the European Regions' EMs level and growth rate since the 90s, and how those EMs compare relative to the world. Since 2002, the European Region’s EMs have been lower than those of the world. After 2004, although still relatively low, both the EMs and growth rates started to increase rapidly, which corresponds to the improvement in market performance over the same period.

Europe Economic Margins vs. The World

AFG's Buy/Sell Criteria - factors in Economic Margin, Management Quality, and AFG's Valuation Metric. In order to determine Management Quality, AFG scores management on their growth decisions in accordance with the company’s ability to either create or destroy wealth. AFG's Valuation Metric measures a company's Percent to Target (the 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.

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).