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Ray Merola

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  • How To Identify Good Stocks, Part 1 [View article]
    Amen, brother. Thank you.
    Apr 6 11:17 AM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 2 [View article]
    sergio_t

    I want to thank you for taking the time to read my article and sharing this contribution. However, can you summarize it? I have to admit I'm not sure exactly what it's saying. I want to learn more about it.
    Apr 6 10:12 AM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Unfortunately, Sir, you don't know what you are talking about, but you insist upon talking. It appears quite a number of other readers on this board have tried to educate you, but to no avail.

    Good luck with all your investments.
    Apr 6 10:07 AM | 7 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    PfR

    I appreciate the remarks. My motivation for contributing to S.A. is due to comments like yours. Writing about stocks and other investments helps keep one sharp and thinking clearly. What I like about S.A. is the interaction: readers generally know their stuff and call it if good facts and analysis is missing.

    I am not trying to sell anything to anyone.
    Apr 6 10:04 AM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    You are welcome, Big Moose. BTW, good S.A. handle.
    Apr 6 09:59 AM | Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    drftr

    This is what makes the market: various views and viewpoints. I likewise use stock screens, so I understand where you're coming from. However, I mix in a healthy does of other factors. I believe insurers are undervalued currently; one of the few such industries in this camp after a huge market run-up.

    While the dividend metrics are important to me, I see other gray tones in the picture that see me through. Notably, I've owned AFL shares for a couple of years and accumulated the position as considerably lower prices; however under the same general investment thesis.
    Apr 6 09:58 AM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 2 [View article]
    AfgTrader1

    I believe investing is about probabilities, one's ability to handicap the probabilities, confidence to "pull the trigger," and experience. Having done this for the better part of 30 years, I learned a lot through mistakes, trial-and-error, and plain hard work.

    An underlying premise behind sound fundamental investing is the philosophy, over time, investors will recognize and pay for earnings and cash flow. Finding disconnects between historical and current metrics often uncover good value stocks. Earnings improve; and the multiple expands to "normal." That was covered in Part 1 of this series.

    In Part 2, we looked at it from another angle: high growth stocks can may maintain relatively high earnings multiples, and they need not expand. However, investors may experience excellent returns if they correctly determine that future earnings will continue to grow rapidly or accelerate.

    I trust I may meet your expectations on future articles.

    Apr 6 12:20 AM | Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Scipio Advisors

    The graphs are a "tool to think with"; they do not provide concrete answers. The user must interpret them, typically analyzing more than one set of parameters. I used to manage essentially the same process by myself. FAST graphs do the legwork much more quickly.

    That said, you have asked a very good question. I'll offer my thought process.

    Using the 15-year chart in the article, we see operating earnings have grown at 11.4% a year on an average PE of ~16x. While not shown in the article, one can easily create a 10-year FAST graph chart; the shorter time frame indicates an ~8% annual growth rate and average PE of ~14x. This confirms your view that operating earnings have been slowing. Slowing earnings growth has predictably lead to a lower multiple: as you pointed out.

    Since consensus forecast future operating earnings are 7% (shouting distance to the previous 10 year actual EPS growth rate of 8%), one could reasonably interpret shaving one additional multiple point from the 10-year actual average. That's how I arrived at my 13x target PE.

    In addition, one could also consider that, in general, companies that generate sustained operating growth of 7% can very well find Mr. Market will assign it up a 15x PE. Using a wide body of long-term market data, companies that demonstrate operating earnings growth between 5% and 15% a year tend to gravitate around a 15x P/E. The Graham formula (original or revised) revolves around this same premise.

    Keeping it simple: if AFL can sustain a forward earnings growth rate of 7%, and based upon the foregoing, I end up projecting the PE may reasonably rise to 13x.

    Therefore, the current 9.5x PE appears unduly low.

    I contend this is due to lingering post-financial crisis concerns, worries over Japanese fiscal and monetary policy, and unusually low interest rates (which hamper insurance companies' ability to generate returns on the premium float). As a long-term investor, I premise these issues will fade over time, and the PE will return to more historic levels; coupled with Aflac's consistent earnings improvement. I cannot tell when the confluence of factors will happen, just that history indicates it will. And I'm willing to stake an investment on it.

    In the meantime, I collect my dividends and annual increases; knowing that my current yield-on-basis is over 3%. I bought my AFL stock a couple of years ago when I believed it was even more undervalued.

    Apr 6 12:13 AM | 2 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Thank you for the encouragement, Dividend Sleuth.
    Apr 5 11:33 PM | Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    What a great question, John

    I do not have any hard-and-fast rules. Your query spurred me to do a quick-check. I have a heavy dose of Dividend Champions and Dividend Aristocrats (examples: AFL, NUE, ED, RDS.A, GIS, UNP); some up-and-comers (examples: AAPL, GM); a couple of lower-yield, high dividend growers (examples: UNH, HAL); at least 2 straight high yielders (examples: ETP, NLY) and some stocks that pay no dividend.

    I favor stocks paying above the S&P 500 average yield, companies that do not decrease the dividend, and a leaning towards stocks that show stronger dividend growth versus plain "high yielders." But there's no absolutes.
    Apr 5 07:43 PM | Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 2 [View article]
    PlatinumChip

    Even though it's probably best to let folks go on any which way they want to think; FAST graphs are not some trading system. All they do is compress the amount of time required to generate the same data by hand to a fraction.

    For me, it's a very simple cost-benefit analysis. FAST graphs can do in a few seconds what used to take me an hour to do by hand. It's a tool, not a stock picking system. The raw data is all available on the web. However as pointed out to another commentator, go try to generate one FAST graphs on your own with free raw data.

    If you rely upon fancy technical analysis, day trading, tips from Uncle Louie, etc., FAST graphs are not for you. Don't waste your money.
    Apr 5 07:31 PM | 3 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    mixie1987

    I have not researched VR. I was able to quickly determine it's a reinsurance company. It may be undervalued on earnings; however EPS appear erratic. The other fundamentals you cited would indicate it's worth a close look under the hood.

    Without doing a complete analysis, I cannot compare Validus with Aflac. A sound comparison would have to weigh Aflac's experienced and shareholder-friendly management, superior RoE, competitive moat, and Dividend Aristocrat status.
    Apr 5 11:08 AM | Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Thank you texasdivinvestor

    The yield is light, but as noted it's been increased for over 30 years running. Appreciate your comment about the column being easy to understand. This is a prime objective. I am no financial professional, just a regular guy.
    Apr 5 10:58 AM | 1 Like Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Thank you for the kind words, Blues

    The second part of the series was published recently, here's the link:

    http://seekingalpha.co...

    I particularly appreciate your view on the post-article commentary. Indeed, as a contributor I often enjoy reading and responding to the threads as much or more than writing the article. I learn a great deal from S.A. readers and remain grateful for that.
    Apr 5 09:07 AM | 3 Likes Like |Link to Comment
  • How To Identify Good Stocks, Part 1 [View article]
    Thank you for your commentary, Paul. Likewise, I agree that free is good.

    Actually, a commentator on this 2-part series asked where one might obtain the raw information illustrated on FAST graphs and I offered him the alternative; which I used to implement myself prior to subscribing. It appears the gentleman missed that, too.
    Apr 5 09:03 AM | 2 Likes Like |Link to Comment
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