Nice article. I find the overlay of EPS vs. stock price helpful. However, I think a better measure of business performance is ROE/ROIC. Have you thought about adding that for each year in your Fast Graph charts?
As Warren Buffett has said, ROE/ROIC is the best measure of the performance of a company's business. Looking for stocks that have consistent earnings growth, a high ROE/ROIC (15% or higher) and a stock price below intrinsic value would be an invaluable process for unearthing potential investment candidates.
Staples Inc. - An Easy Choice At A Great Valuation [View article]
Staples could close all of its stores and still be a very viable business. In 2011 42% of their sales were online. This totaled $10.3 bil. In 2004 they only did $2.9 billion in online sales. They are the 2nd largest online retailer after Amazon. The stock is priced like it's going out of business.
Staples Inc. - An Easy Choice At A Great Valuation [View article]
Great idea. This should've been an 'Editor's Pick'. I believe this is one of the most attractive stocks in the market today. The dividend is fat (and growing at 12% over the past 5 years) and they are aggressively buying back stock. (YOY diluted shares outstanding are down 5.2% and net debt has dropped $360 mil.) They dominate the office supplies industry, have a solid balance sheet (22% net debt/ total capital) and attractive interest coverage of 9.4.
At an Enterprise Value-to-Free Cash Flow Multiple of 6.4, this is about as attractive an investment opportunity I can find right now. The market is pricing this company with the fundamentals of Best Buy. Being the second largest online retailer, I don't see Staples going away anytime soon.
If you apply a 10x EV/FCF multiple, I get a $20.80 stock price. At 12x the stock price would be $25.20. There is a lot of upside in this stock with very little downside risk.
Dividend Aristocrats Are Undervalued [View article]
Nice article. I would consider buying all of the undervalued stocks listed except for Aflac. (I own MDT, JNJ, WAG and BDX.)
My concern with Aflac, and other companies with life insurance companies, is I believe they have essentially have mispriced their policies. My guess is when they calculated the premiums for their policies that were underwritten a few years ago, they assumed a much higher portfolio return (interest rates) than what is available today. Hence, I think this results in some business risk and they may have funding issues to pay off exercised policies.
Are Dividend Growth Stocks In A Bubble? [View article]
Dividend stocks are not in a bubble - far from it. I think they are among the most attractively valued stocks. The proper way to value companies is based on the present value of future free cash flow or as a ratio of enterprise value to free cash flows. Dividends are paid from free cash flows. The ratio of dividends to free cash flows are still well below historical norms. Many of these stocks could easily increase their dividends by 25 to 30 percent. Dividend paying stocks are one of my favorite hunting grounds for new ideas.
Mega Cap Stocks May Be Poised To Outperform [View article]
Great article. I especially like the graphs which illustrate the point nicely. I have thought mega caps have been undervalued for awhile. Many of the mega caps like KO and WMT have seen their stock prices unchanged over the past 10 to 15 years while their earnings have doubled or tripled. While there will always be selective small or mid cap stocks that are cheap, I think it's almost certain the mega caps will outperform over the next 10 years.
Standing Tall With Your Investments [View article]
I was a senior in high school when the stock market crashed. It's one of the most memorable days of my life. It's one of those "where where you when the stock marke crashed" moments. There was not wireless internet or cell phones in those days. I was in Journalism class and it was just after lunch when the word was spreading very fast. My dad was a floor trading on the Chicago Board Options Exchange. I had to pick him up that evening. I never forget how he looked, all hunched over and exhausted, as he walked from the platform to the car.
Here's my two cents on these stocks:
HRL is a long-time holding for me. Should do well in what I think will be a difficult economy for at least the next 3 to 5 years. Given the high quality of the business, and at an Enterprise Value to Normalized Free Cash Flow (EV/FCF) ratio of 15.1, it's my favorite of the three stocks.
CHD is fairly valued. $38 would be a great price. However, it might be awhile before it gets to that valuation.
ITW is on my watch list. Trough EV/FCF valuations were achived in 2008/09 and the late 1980s at about 10x. At 12x or $45.65 I would probably be a buyer as the downside will be limited. ITW returns a lot of money to shareholders via stock buybacks and dividends. I think this is will be a very important factor to look for in companies to own since the overall economic environment will probably be quite poor over the intermediate future.
MKC trades at my fair value estimate. Would like to see it trade at a 25% to fair value before considering to buy it.
Procter & Gamble: A BMW Quality Company Selling At A Toyota Price [View article]
The problem when looking at their long-term track record is that it was done under much better managment. The CEO and CFO ran their previous companies into the ground. (I am sorry it escapes me where they worked before.) I like the stock for what I think may be a bumpy environment for the next 6 months.
Procter & Gamble: A BMW Quality Company Selling At A Toyota Price [View article]
I am in no way implying that P&G will get bought out. However, over the past 25 years the valuation of P&G has averaged the multiple at which similar companies have received buyouts. I am a big believer in 'reversion to the mean'. In the case of P&G, I think it is highly likely.
As for WAG, I do follow it and own some. It is very cheap. My biggest concern is management. The current management has mismanaged the company. The termination of the Express Scripts contract was a battle of egos. IMO, the latest decision to use shares for currency to establish a stake in Boots is insane. They have done all the wrong things in terms of creating shareholder value. I have a lot more confidence in my P&G position than in WAG.
Procter & Gamble: A BMW Quality Company Selling At A Toyota Price [View article]
I take a longer term view and take a five year average of free cash flow margins when determining a company's intrinsic value. In general company profit margins are at an all-time high. The big risk with owning P&G and many other companies is margin compression. However, I think the low valuation offsets some of this risk.
Equities: Now As Cheap As They Were In 1974? [View article]
Be careful. Stocks are not cheap. They are trading at 15x trailing 12 month EPS - in line with the historical average. IMO, projections are useless to value the market. They tend to be overly optimistic and studies have shown they are no better to value the market or stocks than trailing 12 month earnings. At the bottom of the market in February 2008 stocks sold at 8x earnings. Stocks are nowhere near this level of cheapness.
Low interest rates do not necessarily make stocks more attractive. In the 1940s, when interest rates where in the 3 percent range, stocks sold at 8x earnings. IMO, you need to look at a longer time period.
The overall economic backdrop needs to be taken into account when valuing the market. Interest rates are at record lows due to concerns about deflation and poor economic growth prospects. With lower expected growth, it could argued stocks are expensive. The current health of the economy is more akin to Japan and the US in the 1930s and 1940s - deflation. Hence, it could be argued the stock market should sell at a lower valuation.
The U.S. Economy Sitting On The Threshold Of A New Golden Age, Part 1 [View article]
Larry,
VERY WELL SAID...."it's pointless to offer debate, because despite the politeness and pseudo-civility, critical comments are not welcomed nor desired." I could not have said it better without irritating Chuck.
It is really pointless to debate with Chuck because most of the time he interprets contrary opinion or an attempt for a meaningful debate as a personal attack. Chuck adds meaningful content to the site. However, I get the feeling he wants all the interactions with his followers to be like the watching the Telletubies - a "Group Hug". To me, the type of interaction that Chuck encourages is pointless and superficial.
Dividends Provide A Return Bonus [View article]
As Warren Buffett has said, ROE/ROIC is the best measure of the performance of a company's business. Looking for stocks that have consistent earnings growth, a high ROE/ROIC (15% or higher) and a stock price below intrinsic value would be an invaluable process for unearthing potential investment candidates.
Staples Inc. - An Easy Choice At A Great Valuation [View article]
Staples Inc. - An Easy Choice At A Great Valuation [View article]
At an Enterprise Value-to-Free Cash Flow Multiple of 6.4, this is about as attractive an investment opportunity I can find right now. The market is pricing this company with the fundamentals of Best Buy. Being the second largest online retailer, I don't see Staples going away anytime soon.
If you apply a 10x EV/FCF multiple, I get a $20.80 stock price. At 12x the stock price would be $25.20. There is a lot of upside in this stock with very little downside risk.
Dividend Aristocrats Are Undervalued [View article]
My concern with Aflac, and other companies with life insurance companies, is I believe they have essentially have mispriced their policies. My guess is when they calculated the premiums for their policies that were underwritten a few years ago, they assumed a much higher portfolio return (interest rates) than what is available today. Hence, I think this results in some business risk and they may have funding issues to pay off exercised policies.
Any thoughts?
Are Dividend Growth Stocks In A Bubble? [View article]
Fast forward to today and the market is upside down from 2000. The mega caps and tech stocks are cheap than the average small cap stock.
Are Dividend Growth Stocks In A Bubble? [View article]
Are Dividend Growth Stocks In A Bubble? [View article]
Mega Cap Stocks May Be Poised To Outperform [View article]
I have thought mega caps have been undervalued for awhile. Many of the mega caps like KO and WMT have seen their stock prices unchanged over the past 10 to 15 years while their earnings have doubled or tripled. While there will always be selective small or mid cap stocks that are cheap, I think it's almost certain the mega caps will outperform over the next 10 years.
Standing Tall With Your Investments [View article]
Here's my two cents on these stocks:
HRL is a long-time holding for me. Should do well in what I think will be a difficult economy for at least the next 3 to 5 years. Given the high quality of the business, and at an Enterprise Value to Normalized Free Cash Flow (EV/FCF) ratio of 15.1, it's my favorite of the three stocks.
CHD is fairly valued. $38 would be a great price. However, it might be awhile before it gets to that valuation.
ITW is on my watch list. Trough EV/FCF valuations were achived in 2008/09 and the late 1980s at about 10x. At 12x or $45.65 I would probably be a buyer as the downside will be limited. ITW returns a lot of money to shareholders via stock buybacks and dividends. I think this is will be a very important factor to look for in companies to own since the overall economic environment will probably be quite poor over the intermediate future.
MKC trades at my fair value estimate. Would like to see it trade at a 25% to fair value before considering to buy it.
Procter & Gamble: A BMW Quality Company Selling At A Toyota Price [View article]
Procter & Gamble: A BMW Quality Company Selling At A Toyota Price [View article]
As for WAG, I do follow it and own some. It is very cheap. My biggest concern is management. The current management has mismanaged the company. The termination of the Express Scripts contract was a battle of egos. IMO, the latest decision to use shares for currency to establish a stake in Boots is insane. They have done all the wrong things in terms of creating shareholder value. I have a lot more confidence in my P&G position than in WAG.
Procter & Gamble: A BMW Quality Company Selling At A Toyota Price [View article]
Equities: Now As Cheap As They Were In 1974? [View article]
Equities: Now As Cheap As They Were In 1974? [View article]
Low interest rates do not necessarily make stocks more attractive. In the 1940s, when interest rates where in the 3 percent range, stocks sold at 8x earnings. IMO, you need to look at a longer time period.
The overall economic backdrop needs to be taken into account when valuing the market. Interest rates are at record lows due to concerns about deflation and poor economic growth prospects. With lower expected growth, it could argued stocks are expensive. The current health of the economy is more akin to Japan and the US in the 1930s and 1940s - deflation. Hence, it could be argued the stock market should sell at a lower valuation.
The U.S. Economy Sitting On The Threshold Of A New Golden Age, Part 1 [View article]
VERY WELL SAID...."it's pointless to offer debate, because despite the politeness and pseudo-civility, critical comments are not welcomed nor desired." I could not have said it better without irritating Chuck.
It is really pointless to debate with Chuck because most of the time he interprets contrary opinion or an attempt for a meaningful debate as a personal attack. Chuck adds meaningful content to the site. However, I get the feeling he wants all the interactions with his followers to be like the watching the Telletubies - a "Group Hug". To me, the type of interaction that Chuck encourages is pointless and superficial.