The Applied Finance Group’s (AFG’s) Economic Margin (EM) methodology helps investors understand what a company earns above its true cost of capital or how profitable a firm is. Companies expected to improve their Economic Margins have proven to be more likely to outperform than companies with expected EM declines. The table below provides 5 stocks expected to improve their Economic Margins in the next fiscal year and look very attractive from a valuation perspective according to AFG’s valuation model.
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 systematic analysis spans across growth and value stocks, all sectors, industries, and market caps with over 4,500 covered securities.
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The 5 stocks below have several qualities of firms that are likely to outperform the S&P 500 and are worthy of a closer look when considering making additions to your clients portfolio. As always we will track the performance of these companies as a group from the time that they were identified as attractive and keep VE.com readers updated on their performance every quarter.
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Here are a few snapshots from AFGView.com providing some insight into why we like HPQ:
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 Intrinsic Value Chart:
• Identifies entry/exit points
• Shows how well AFG has tracked the company (accuracy)
• Displays the trading range of the company each year through time (blue bars)
• Displays the end of year closing price (dash on blue bar)
• Displays AFG’s default intrinsic value (red dotted line)
How to Read this chart:
• The Blue Bars represent the high and low trading range for a stock for each calendar year.
• The red dotted line represents Applied Finance Group’s (AFG’s) historical Intrinsic Value through time.
• When the red line (Intrinsic Value) is above the blue bars (trading range) the company looks to be undervalued.
• When the red line (Intrinsic Value) is below the blue bars (trading range) the company looks to be overvalued.
Below is an example of AFG’s Intrinsic Value Chart to provide a better understanding of what to look for when analyzing AFG’s Intrinsic Value Chart.
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