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It is often very hard to evaluate stocks declining at a rapid pace. The following are the list of NYSE stocks consistently dropping fast in last 60 trading days. These securities consistently underperformed the broad market. We basically used two fundamental criteria to evaluate these stocks.

Company earnings are very closely followed by many investors. Discounted earnings model is a popular model to estimate the worth of a company. The amount of future earnings from the business is estimated for each forecasted period and discounted at the appropriate discount rate to determine their present value. The present value of each period of estimated earnings for all future years are then added to determine the total present value.

The last step determines the perpetual value. It's the residual value of the business at the end of the period of years being estimated. This value is discounted to its equivalent present value and added to the present value of the future earnings to determine total intrinsic value. Some investors like adding the book value to this number; we intentionally eliminated the book value as we are evaluating the companies based on earnings power. This model is commonly used to price IPOs and to evaluate a company's worth in a M&A scenario.

A rule of thumb for stock valuation that is popular on Wall Street is to calculate the sum of the expected growth rate of a stock's earnings plus its dividend yield and divide this by its P-E ratio. The higher the ratio, the better, and the famed money manager Peter Lynch recommends investors select stocks with a ratio of 2 or higher and to avoid stocks with a ratio less than 1.

We assumed a discount rate of 12% and the growth will stabilize after the next 5 years and enter a constant phase.


Carbo Ceramics Inc. (CRR):
CARBO Ceramics Inc. is a supplier of ceramic proppant. The company is a provider of software, and consulting services, spill prevention, containment and geotechnical monitoring. The company has a Return on Assets (ROA) of 14.2% and a Return on Equity (ROE) of 16.1%. The company is trading with a Return on Invested Capital (ROIC) of 16.1%. The company is expected to earn $8.54 per share next year. The company is expected to grow at 26.24% over the next 5 years. The stock is valued at $134.2 using the Discount Earnings Model (DEM). The company has a sum of growth and yield to PE ratio (GY2PE) of 2.27. CRR is currently trading at $88.28, falling $34 or 27% this year. CRR is undervalued and is trading at 50% discount levels compared to its earning potential.

RPC Inc. (RES): RPC Inc. provides a range of oilfield services and equipment primarily to independent oil and gas companies engaged in the exploration, production and development of oil and gas properties in the United States and internationally. The company has a ROA of 19% and a ROE of 30.9%. The company is trading with a ROIC of 25.3%. The stock is expected to earn $2.00 per share next year. The stock is expected to grow at 21.95% over the next 5 years. The company is valued at $29.5 using DEM. The company has a GY2PE of 3.46. RES is currently trading at $14.49, falling $6 or 29% this year. RES is undervalued and has potential to double over the next few years.

China Unicom (Hong Kong) Ltd. (CHU): China Unicom (Hong Kong) Limited is an integrated telecommunications operator in China providing mobile voice and value-added, fixed-line voice and fixed-line broadband, data communications and other telecommunications services to its customers. The company has a ROA of 0.7% and a ROE of 1.4%. The company is trading with a ROIC of 1.0%. The company is expected to earn $0.66 per share next year. The stock is expected to grow at 28.02% over the next 5 years. The stock is valued at $10.6 using DEM. The company has a GY2PE of .81. CHU is currently trading at $17.57, falling $4 or 18% this year. CHU is not a value stock and the current price levels based on its earnings potential.

PharMerica Corp. (PMC): Pharmerica Corporation operates as an institutional pharmacy services company in the United States. It offers services to healthcare facilities and provides management pharmacy services to hospitals. The company has a ROA of 2.6% and a ROE of 5.1%. The company is trading with a ROIC of 3.1%. The stock is expected to earn $1.24 per share next year. The company is expected to grow at 13.93% over the next 5 years. The company is valued at $15.4 using DEM. The company has a GY2PE of 1.34. PMC is currently trading at $12.61, falling $2.8 or 18% this year. PMC is trading near its fair value.

National Fuel Gas Co. (NFG): National Fuel Gas Company operates as a diversified energy company in the United States. Company operates in four business segments: Utility segment, Pipeline and Storage segment, and Exploration and Production segment and Energy Marketing segment. The stock has a ROA of 4.5% and a ROE of 13.0%. The company is trading with a ROIC of 7.7%. NFG is expected to earn $2.89 per share next year. The company is expected to grow at 0.79% over the next 5 years. The company is valued at $27.1 using DEM. The company has a GY2PE of .21. NFG is currently trading at $48.62, falling $7.1 or 13% this year. NFG is not a value stock and the current price levels based on its earnings potential.

YPF S.A. (YPF): YPF SOCIEDAD ANONIMA is an energy company. YPF engages in the exploration, development and production of crude oil, natural gas, and liquefied petroleum gas (LPG) in Argentina. The company also involves in refining, marketing, transportation, and distribution of oil and a range of petroleum products, petroleum derivatives, petrochemicals, LPG, and bio-fuels; and gas separation and natural gas distribution operations. The company has a ROA of 13% and a ROE of 30.5%. YPF is trading with a ROIC of 19.9%. The company is expected to earn $4.40 per share next year. The company is expected to grow at 11.40% over the next 5 years. YPF is valued at $51.7 using DEM. The company has a GY2PE of 3.66. YPF is currently trading at $27.09, falling $8.4 or 24% this year.

Meadowbrook Insurance Group Inc. (MIG): Meadowbrook Insurance Group, Inc. is a specialty focused commercial insurance underwriter and insurance administration services company. It markets and underwrites specialty property and casualty insurance programs and products. The company has a ROA of 2.9% and a ROE of 11.4%. The stock is trading with a ROIC of 9.2%. The stock is expected to earn $1.09 per share next year. MIG is expected to grow at 8.60% over the next 5 years. The company is valued at $12.1 using DEM. The company has a GY2PE of 1.18. MIG is currently trading at $9.09, falling $1.8 or 16% this year. MIG is trading near its fair value.

Source: Discounted Stocks Or Value Traps?