Value Expectations

Our Portfolio Performance Update

TradingHelpDesk, Good questions.

No, we do not meet with any management teams. We use our Management quality score to measure if the company is generating positive or negative Economic Margins. We don’t like to see them grow the business if they have negative economic margins, we would like to first see them shrink and fix the business first. If they have positive economic margins, we do like to see them grow.

The only time we ever meet with management teams is for corporate consulting. We help corporations structure management compensations plans or to value acquisitions and divestitures.

I do want to clarify something on our valuation system. Based on this comment on other questions you have asked about solving for sales growth. We are using our economic margin to measure historical economic profits, simply to see how well management runs its business, but our valuation system also uses Economic Margins. Basically we are forecasting Economic Margins in the future, our DCF Model with NO perpetuity; we assume that economic margins will decay over time to zero (we do this on a company specific basis). Once Economic Margins are zero then that means that the company is earrings its cost of capital, so growth is irrelevant. What we are doing next is discounting the future economic margins to come up with an intrinsic value.

We will be writing more articles about how we calculate and use Economic Margin on our site that may not show up on Seeking Alpha. I encourage anyone that wants to read to register on our site (Value Expectations.com) to ensure they access the articles or receive via email:

www.valueexpectations....

Lastly, we are using publicly available information to build our models. But again, we are taking that data and making adjustments which leads to our development of Economic Margins.
Thanks for all your feedback and Questions, hope this clarifies things.

AFG

Our Portfolio Performance Update

TradingHelpDesk, Good questions.

No, we do not meet with any management teams. We use our Management quality score to measure if the company is generating positive or negative Economic Margins. We don’t like to see them grow the business if they have negative economic margins, we would like to first see them shrink and fix the business first. If they have positive economic margins, we do like to see them grow.

The only time we ever meet with management teams is for corporate consulting. We help corporations structure management compensations plans or to value acquisitions and divestitures.

I do want to clarify something on our valuation system. Based on this comment on other questions you have asked about solving for sales growth. We are using our economic margin to measure historical economic profits, simply to see how well management runs its business, but our valuation system also uses Economic Margins. Basically we are forecasting Economic Margins in the future, our DCF Model with NO perpetuity; we assume that economic margins will decay over time to zero (we do this on a company specific basis). Once Economic Margins are zero then that means that the company is earrings its cost of capital, so growth is irrelevant. What we are doing next is discounting the future economic margins to come up with an intrinsic value.

We will be writing more articles about how we calculate and use Economic Margin on our site that may not show up on Seeking Alpha. I encourage anyone that wants to read to register on our site (Value Expectations.com) to ensure they access the articles or receive via email:

www.valueexpectations....

Lastly, we are using publicly available information to build our models. But again, we are taking that data and making adjustments which leads to our development of Economic Margins.
Thanks for all your feedback and Questions, hope this clarifies things.

AFG



On Aug 14 04:29 AM TradingHelpDesk wrote:

> Interesting that you combine 2 quantitative measures, economic margin
> and the metric valuation system with a qualitative measure - the
> effectiveness of management.
>
> It makes sense to me and I can see how you might outperform. One
> thought / question; Do you guys meet management and ask questions
> face to face or do you assess them using publicly available information?

Our Monthly Market Review for July

Here is a link to our complete market review:

www.valueexpectations....

Seeking Alpha posted this before we emailed them a copy of the complete version.

Thank you for your feedback!

Our Monthly Market Review for July

Here is a link to our complete market review:

www.valueexpectations....

Seeking Alpha posted this before we emailed them a copy of the complete version.

Thank you for your feedback!



On Aug 09 04:17 AM TradingHelpDesk wrote:

> You are right to mention the jobs data as being fundamental to sentiment
> and risk appetite. Friday's better then expected 247,000 new claims
> versus the 325,000 forecast is good news.
>
> Another couple of weeks of improving data and we may well see a continuation
> of the equity run. Investors are looking for reasons to invest and
> even the pessimists are slowly coming round - though I admit the
> US still faces significant structural challenges not least government
> debt.

Earnings on Deck - Three Companies That Look the Best

Precisely


On Jul 17 03:47 AM TradingHelpDesk wrote:

> Freerange, I empathise with some of your views but I do believe that
> it is useful to look at issues like instrinsic and economic value.
> It may not tell us where the stock will be next week or even in 3
> months - market wide risk appetite is more key over short term horizons
> - but if you as an investor are keen to pay fair value at most for
> a stock then this excellent articel and others like it will help
> you.
>
> If you just want to chase the market trend then of course there are
> other methods that would suit you better.

Earnings on Deck - Three Companies That Look the Best

Thank you for your feedback.

The Applied Finance Group is a global independent equity research firm with over 200 institutional firms as clients, which manage over $350 billion in equity assets. AFG is not an RIA so has no investments in any recommendation. We help clients with a long term investment discipline and not necessarily focused on day trading.

Here is a link in case anyone is interested in our long term performance portfolio around the world:
www.valueexpectations....

Lastly here is an article on Apple when we thought it was much more attractively priced at $91 not $147:
www.valueexpectations....

If you would like to learn how we could better help your investment process, visit: EconomicMargin.com


On Jul 30 02:19 PM Timeline Strategy Consulting wrote:

> Just like I said. AAPL closed at $147.52 on the day when this article
> was published. It's at about $164 today. That's a 10% gain in 3 weeks.
>
>
> PFE and BSX are up much less than AAPL in this same period. AMD is
> down.
>
> Back to the drawing board with your stock picking tools.

15 Stocks You May Want to Keep Out of Your Portfolio

We appreciate all comments and look forward to providing the results of our performance every quarter and all though we may not get every stock pick correct we do provide a solid buy/sell spread with a 70% batting average on buy recommendations. Here is a link to our last performance update on our buys

www.valueexpectations....

and here is our buy sell spread

www.valueexpectations.....

Earnings Quality: An Important Indicator

For those unfamiliar with “earnings quality” or other forms of forensic accounting which look at accruals, below are two interesting articles.

WSJ: Accrual Investing' Advocate Seeks to Clear Away Bluster:

online.wsj.com/article...

Smart Money: Forensic Investing:
www.smartmoney.com/inv.../

ADR Overview - Which Stocks Look Good, Which Don't

Regular followers have been exposed to the metrics and techniques used to identify our potential buy recommendations. We apologize for not adding a summary of some of our metrics that include economic performance, valuation, management quality, earnings quality for newer followers.

Here is a link to an updated version of this article that contains those summaries:

www.valueexpectations....

Apple: Buy, Sell or Hold?

Hi Stephen Rosenman,

I would like to clarify that our thesis does not rely on one variable.
We are actually using our Economic Margin Framework which encompasses a valuation system that explicitly addresses the four main value drivers of enterprise value: profitability, competition, growth, and cost of capital.

Below is a brief overview:
valueexpectations.com/...

For an in-depth overview, here is a white paper on our Economic Margin Frame:
www.valueexpectations....

We do appreciate your feedback and will do a better job of elaborating on our process.

VE



On Jun 20 02:17 PM Stephen Rosenman wrote:

> Apple's share price does not depend on sales growth. Rather, its
> price hinges on earnings. Nokia, for instance, increased its revenue
> from $34 billion to $58 billion over the last 3 years. Unfortunately,
> for Nokia, profit margins fell to 0.04%. Apple, in contrast, has
> not only grown revenue but driven net profit margins to 14.7% (and
> its iPhones which command greater margins have not yet been factored
> in). The author's thesis looks at only one variable (and not the
> key metric) to derive fair price.

Freeport McMoRan: Our Investment Summary

Here is a link to the rest of the report. Seeking Alpha must have missed it from the feed.

Link to FCX report below:
www.valueexpectations....


VE

Sell in May and Go Away? No Way

Hi Yuman,

Here is a link with recent performance information:
valueexpectations.com/...

Thanks,
Value Expectations


On May 12 03:08 PM yuman wrote:

> You forgot to validate, or prove the historical value, of your buy
> criteria variables. Fundamental soundness is subjective and may not
> translate into market value.

Finding the Most Undervalued Stocks

toobad41,

Here is a follow-up article with specific company examples.

Specific List of Undervalued Companies: www.valueexpectations....

Thank you for your feedback,

VE



On Mar 11 09:27 AM toobad41 wrote:

> Did I miss something here? So which stocks are value stocks. Have
> any examples? Or do I have to pay a large membership fee to find
> out.

Finding the Most Undervalued Stocks

Hi toobad41,

This article was meant to identify what sectors and styles are most undervalued. We will have a follow up article and highlight several companies that look undervalued and fit our default BUY criteria:

Value Scores > 50( valueexpectations.com/... )

Economic Margin Change> 50 ( www.valueexpectations.... )

Thanks,
VE

Apple's Current Expectations vs. Its 52-Week High

Hi Hedged In,

Thank you for your feedback. We try to be consistent with our posts and typically use a three year or five year EBITDA Margin, same with asset turns. Our institutional product allows you to adjust any line item in your proforma year by year to calculate an intrinsic value.

I read your profile and it seems you are a professional investor, so I would be more than happy to offer you a temporary username and password. If you visit our blog: valueexpectations.com you will notice a section on the left hand side where you could click for a trial account. Once you contact us, I can fill you in with more details.

Take care!
VE



On Mar 09 05:42 PM Hedged In wrote:

> Good analysis -- thank you. (Is the tool available anywhere on the
> internet?)
>
> Most of the comments seemed to miss the point that you were just
> solving for future growth based on current stock price, taking other
> variables as fixed.
>
> However, taking EBITDA as fixed is highly risky. Apple's margins
> are probably at an all time high as Windows weakness allows Apple
> to charge a premium for its computers and the iPhone is the only
> show in town.
>
> But over the next year, we'll see netbooks take serious market share
> and drive down laptop pricing (and the OS will matter less as more
> moves into the cloud), and Android phones will start to compete with
> the iPhone.