Two months ago, I put up a list of negative enterprise value stocks that I ran from the Yahoo screen in order to test how the strategy would perform when net nets disappear.

No, I didn’t make over 100% over a short period of time, but I hope I did grab your attention.

Q1 2009 Earnings Call

April 28, 2009; 10:00 am ET

Every so often, MagicDiligence compiles a list of Magic Formula stocks sorted by their dividend yield, price-to-sales ratio, and price-to-book ratio for investors that like to use those metrics. The result is a list of attractive value stocks for additional research. Here are the top 10 in each of the three metrics listed above:

Dividend Yield

I was reading a post by Magic Diligence on Why and How to Use Enterprise Value in Evaluating Stocks and realized I could find companies trading at less than cash per share quite quickly. By searching for companies with negative enterprise values, the screen would also ensure that the companies have manageable debt as well as be a business that is non-capital intensive e.g. airlines and oil industry. Add in a couple of extra criteria such as an enterprise value/revenue < than 1 and a ROE of > 0 to try and filter out unduly cheap companies.

You can run the screen yourself at Yahoo.

Q4 2008 Earnings Call

February 24, 2009 10:00 am

Over the past several weeks, MagicDiligence has been ranking stocks on two of the Magic Formula Investing screens by several well known value and momentum statistics that have been shown to outperform the market in James O'Shaughnessy's book What Works on Wall Street. For those that missed them:

• Highest Dividend Yield
• Best 1-year Relative Strength
• Lowest Price-to-Sales Ratio
• Lowest Price-to-Book Ratio

For the final article in this vein, we're going to combine all of the rankings into a cumulative chart, a quantitative measure of the most undervalued stocks on the MFI screen. The methodology here is simple. All of the stocks in the two MagicDiligence MFI screens, the top 100 over 50 million and the top 50 over 2 billion, were first ranked 1-130 (there were 20 stocks on both screens) in each category. For example, the stock with the lowest price-to-sales ratio gets 1 point, while the highest price-to-sales ratio received 130 points. Then this procedure was duplicated for dividend yield, relative strength (1-year performance), and price-to-book ratio. When a number of stocks held the same value, the ranking assigned was the same number to all matching stocks (for example, all non-dividend paying stocks earned a rank of 55). A cumulative score was achieved by adding the 4 rankings together. The goal is to find the stocks that ranked the highest on average across all statistics.

Only a few weeks ago we were producing 50% more revenue with 20% fewer employees than at the last cycle. Unfortunately, however, we’re having to eliminate 15% of our global employee base, approximately 400 individuals.

Q3 2008 Earnings Call Transcript

October 28, 2008, 10:00 am ET

TWST: Who is at the top of your list at this point?

Q2 2008 Earnings Call

August 6, 2008 10:00 am ET

Q2 2008 Earnings Call Transcript

August 6, 2008 10:00 am ET

Heidrick & Struggles Intl. (HSII) June 13, 2008 close: $27.27

Heidrick & Struggles International, Inc. (HSII)

Q1 2008 Earnings Call Transcript

I have written at length on Monster Worldwide (MNST), Korn Ferry (KFY), and Heidrick & Struggles (HSII) in the past few months, arguing that the upcoming turmoil in the economy and, eventually, the job markets will reveal the underlying cyclicality of these businesses, resulting in massive decreases in earnings, earnings estimates, and share price.

So far, my thesis has begun to play out nicely with MNST, which has seen pressure in both US and international MEI (a good proxy for business going forward). In the US, MNST has not only seen the MEI fall, but has also seen its pricing fall as well, due primarily to fewer sales to small and medium size businesses, which on average pay more per listing.

Heidrick & Struggles

Q4 2007 Earnings Call

February 26, 2008 10:00 am ET

I made a number of trades Friday, so I’m gonna quickly go down the line and explain.

Sells

With recession fears rising, and evidence continuing to emerge that sentiment has truly shifted towards a bear market scenario, it is prudent to review your portfolio and take steps to ensure that you are well protected in this environment.

Bull markets make everyone look like a genius, especially those who invest in high beta stocks, which typically tend to exhibit strong growth, lofty expectations, unreasonable valuations, and a variety of other poor fundamental qualities. None of this matters in bull markets, as these stocks ride the sentiment higher and higher.

The more I study staffing stocks tied closely to the economic cycle, the more I continue to believe that the market--despite giving lip-service to cyclical concerns, has not realized how bad things really get for these companies when the economy heads downhill. The only analyst report I found that even took a cursory look at Korn Ferry (KFY) and Heidrick & Struggles International (HSII)'s financials prior to 2003 was Credit Suisse First Boston. And is it surprising, then, that they were also the only company I could find that had conveniently not included FY09 or FY10 revenue estimates?

Nearly every analyst cites cyclical concerns in these names, but none of the ones I could find actually models a true recession scenario. Even Goldman, which has probably been the most bearish of all analysts on the permanent staffing companies, does not model anything close to a recession scenario. Let's take a look at implied revenue growth estimates for KFY:

Given that both these stocks have moved against me in recent weeks, I thought I would post an update. I previously gave arguments for a short position on both stocks, and each has rallied on short term positive news: Korn Ferry (KFY) had an excellent quarter, and maintained better then expected guidance. Maguire Properties (MPG) announced it is looking to put itself up for sale (again), which was one of the main risks I'd mentioned in my short thesis. So, what does this news mean for each company? See my prior write-ups on KFY and MPG.

In KFY's case, I consider short term earnings to be largely irrelevant, except that they generate a bit more cash for a quarter or two. My thesis remains clear: if hiring in the US slows down, KFY's business will deteriorate, as it has in the past. That said, I should note that there are reasons to believe that this downturn may not be quite as bad as in years past. KFY's sector exposure is buoyed by a healthy basic materials and other significant non-cyclical focus, which could potentially help them weather a storm a bit more.

The much awaited August non-farm payroll report is due to be released this morning. I say “much awaited” because the market seems to be placing a huge emphasis on this number, although we know that this is a lagging indicator. [For example, see Joseph Ellis’s Ahead of the Curve]

Both the Challenger survey and the ADP private sector numbers are pointing to a weak headline this morning. However, one never knows what the birth/death adjustments will do to the actually number. There may be another way of looking that the health of the job market that by-passes the statisticians.