As some investors may believe the market is starting to show "signs of recovery", many of the over 200 institutional firms The Applied Finance Group (AFG) works with can always take advantage of identifying mispriced securities. While some of AFG’s clients might have a specific focus on growth or value, most subscribe to the practice of buying growth at a discount (growth at a reasonable price GARP) and avoiding “value traps.”

In October 2008 AFG released the study, Then and Now, discussing the low expectations priced into the market

By Skymist

We have seen the recent economic collapse drive stocks down, way down. Especially in the materials and energy sector. If we believe we are in a recovery, then we can expect stocks to move up substantially, and the greatest potential for gain is in the stocks given up for dead previously, but now back in favor. Let's take a look at the materials and energy stocks which are at least 90% down from their 2008 or 2009 high price, and see if we can find any "sleepers".

Normally when searching for buy ideas, AFG narrows its list of potential investment opportunities using several powerful proprietary variables including valuation, economic margin, management quality, earnings quality and others. Using AFG’s valuation variable (value score) as a stand-alone screen, ValueExpectations has shown portfolios that have gone on to earn outstanding returns. We first posted a blog “High Value Score Stocks: S&P 500” in December of 2008 using only AFG's valuation variable - Value Score. These companies (DDS, S, NOV, MTW, SII, WFR, CHK) were identified as having the highest value score within the entire index. Since release, that portfolio has outpaced the S&P 500 by over 71% as of May 26, 2009.

With the success of the first high value score stocks blog, we released a second portfolio in a blog posted on May 7, 2009. This portfolio consists of S&P 500 High Value Score stocks (as of May 7, 2009) and so far it has been outperforming the S&P 500 (performance results will be released in our next performance update blog in a few weeks).

The following table contains the two cheapest companies in the Russell 2000 from each sector based on The Applied Finance Group’s Recommendation and Value Score (explained below). All of the companies listed below are the most attractive in their sector based on AFG Recommendation, which factors in each companies Economic Margin, Intrinsic Value, and Management Quality Score. All companies listed also had the highest Value Score (upside) relative to their sector peers. Also provided is a VE analysis of each company to identify implied sales growth expectations versus what the company has delivered historically in sales growth over the past 5 years. Measuring the spread between a company’s VE sales growth expectations and what it has historically delivered should give you a good idea of which companies have the best chance of meeting or exceeding those expectations, and thus are more likely to outperform.

Given that the stock market has lost a tremendous amount of value over the past year, it is important to point out the market cap for the companies in the table. The twenty-two companies shown below have returned -53% on average over the past year vs. -33% for the Russell 2000 Index as a whole. Specifically, a few companies now maintain a market cap that some investors may define as micro caps. If micro caps are within your universe of focus, then the following table can help identify some gems to invest in, especially since micro caps (as well as small caps) have outperformed large cap stocks by about 10% since the market bottomed on March 9, 2009. However, if the “bigger” small caps are more to your liking, the table provides a good snap shot for several companies with respectable size that may outperform the Russell 2000, based on Value Score and imbedded expectations.

Q4 2008 Earnings Call

March 11, 2009 11:00 am ET

Until 1990, gambling in Mississippi was not permitted. Now it is a major source of revenue for the state and an attractive tourist attraction. Following are some interesting facts about Mississippi:

1. 25% of total employment is generated by the agriculture industry.
2. Mississippi's most important agricultural products are poultry and eggs, forestry, soybeans and corn.
3. The state offers different business incentives to new businesses and businesses relocating to Mississippi. They include tax credits, and tax exemptions.
4. The top manufactured products are processed foods, beverages, dairy and grain products.
5. Between 2004 and 2005 Mississippi’s export increased by 26% to achieve a record $4 billion.
6. Mississippi’s top export are chemical products.
7. Manufacturing firms employ 172,000 workers in the state.
8. Mississippi’s oil reserves rank it number 13 out of 50 states, with 167 million barrels of oil.
9. Mississippi has the lowest cost of living of all states.
10. In 2006 the total state product was $84 billion.

The following companies are headquartered in Mississippi:

Q3 2008 Earnings Call

November 11, 2008; 11:00am ET

Earnings are soaring at Callon Petroleum as crude and natural gas prices rise. The company has surprised on estimates each of the last four quarters by an average of 112.13%. Even though the stock has been on a run in recent months, Callon trades at only 6.67 times forward earnings.

Company Description

Q1 2008 Earnings Call

May 8, 2008 11:00 am ET

Q4 2007 Earnings Call

March 7, 2008 11:00 am ET

The most recent forecasts out of the U.S. call for a higher-than-average number of named storms in the next six months, for many of the same reasons cited last year.