It is often very hard to find value in stocks with an uptrend. The following is the list of S&P500 (SPY) stocks consistently edging higher in the last 45 trading days. These securities consistently outperformed the broad market. We basically used two fundamental criteria to evaluate these stocks.
Company earnings are very closely followed by many investors. The 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 forecast period and discounted at the appropriate discount rate to determine present value. The present value of each period of estimated earnings for all future years is 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 five years and enter a constant phase.
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Teradata Corp (TDC): Teradata Corporation is a provider of enterprise data warehousing, including enterprise analytic technologies and services. The company also provides integrated marketing software. The company has a Return on Assets (ROA) of 17.4% and a Return on Equity (ROE) of 28.7%. The stock is trading with a Return on Invested Capital (ROIC) of 28.7%. The stock is expected to earn $3.02 per share next year. The company is expected to grow at 13.92% over the next five years. TDC is valued at $37.3 using the Discount Earnings Model (DEM). The company has a sum of growth and yield to PE ratio (GY2PE) of .59. TDC is currently trading at $66.41, raising $17 or 34% this year. TDC is pretty overvalued when evaluated using its earnings power.
Apple Inc. (AAPL): Apple Inc. designs, manufactures and markets a range of personal computers, mobile communication and media devices, and portable digital music players, and sells a range of related software, services, peripherals, networking solutions, and third-party digital content and applications. AAPL has a ROA of 26% and a ROE of 38.8%. The stock is trading with a ROIC of 38.8%. The company is expected to earn $47.76 per share next year. The company is expected to grow at 17.30% over the next five years. AAPL is valued at $634.1 using DEM. The company has a GY2PE of 1.44. AAPL is currently trading at $551.15, raising $146.14 or 36.07% this year. Apple still has at least $100 of growing room, with $32 per share cash and zero debt.
Comcast Corp A (CMCSA): Comcast Corporation with its subsidiaries provides entertainment, information and communications products and services in the United States and internationally. Comcast provides video, high-speed Internet and phone services to residential and business customers in the United States. CMCSA has a ROA of 3.1% and a ROE of 8.4%. The company is trading with a ROIC of 4.9%. The company is expected to earn $2.17 per share next year. The company is expected to grow at 11.46% over the next 5 years. The company is valued at $25.5 using DEM. The company has a GY2PE of .88. CMCSA is currently trading at $29.84, raising $5.3 or 22% this year. CMCSA is trading near its fair value.
EMC Corp (EMC): EMC Corporation develops, delivers and supports the information and virtual infrastructure technologies and solutions. EMC provides information storage, back-up and protection, management, security, information intelligence, data computing and virtualization technologies, services and solutions. EMC has a ROA of 6.6% and a ROE of 11.5%. EMC is trading with a ROIC of 8.9%. EMC is expected to earn $1.97 per share next year. The company is expected to grow at 13.39% over the next five years. EMC is valued at $24.1 using DEM. The company has a GY2PE of .85. EMC is currently trading at $29.01, raising $7.3 or 34% this year. EMC is trading near its fair value.
Office Depot Inc (ODP): Office Depot, Inc. and its subsidiaries supply office products and services. The company's selection of brand name office supplies includes business machines, computers, computer software and office furniture, while its business services encompass copying, printing, document reproduction, shipping, and computer setup and repair. The company has a ROA of -0.8% and a ROE of -4.9%. The company is trading with a ROIC of -2.5%. The company is expected to earn $0.17 per share next year. The company is expected to grow at 11.28% over the next five years. The company is valued at $1.9 using DEM. The company has a GY2PE of .40. ODP is currently trading at $3.26, raising $1 or 48% this year.
American Intl Group Inc (AIG): American International Group, Inc. is an international insurance organization. The company operates property and casualty insurance networks worldwide and conducts activities in the U.S. life insurance and retirement services industry. The company has a ROA of 0.2% and a ROE of 23.7%. AIG is trading with a ROIC of 1.3%. The stock is expected to earn $2.77 per share next year. AIG is expected to grow at 9.27% over the next five years. The company is valued at $31.2 using DEM. The company has a GY2PE of .88. AIG is currently trading at $28.25, raising $4.2 or 17% this year. AIG is trading near its fair value.