Value Composite #1

Includes: ANDV, MPC, UAL, VLO, WDC
by: Mitchell Mauer

In this edition of Watchlist Wednesday, we highlight five of the top stocks qualifying for the Value Composite #1 screen.

This screen is discussed in the book What Works On Wall Street by Jim O'Shaughnessy.


Value Composite #1 is a compilation of multiple value factors. In Jim O'Shaughnessy's research, he found that there was an "ongoing horse race" between which single factors performed the best.

While stocks with the lowest price-ratios always ended up as the best investment options, the best performing price-ratio continuously changed over various time periods.

This led O'Shaughnessy to build a "master value composite factor" which consistently outperforms any individual metric.

Value Factor #1 is what he calls a "pure play" factor because it only accounts for balance sheet and cash flow metrics. The stocks are equally weighted by the following ratios:

  • Price to Book
  • Price to Earnings
  • Price to Sales
  • Price to Free Cash Flow
  • Enterprise Value to EBITDA

Here is a breakdown of five stocks with the lowest enterprise multiple as found on The Stock Market Blueprint:

  • Valero Energy Corp. (NYSE:VLO) - Valero Energy Corporation operates as an independent petroleum refining and marketing company in the United States, Canada, the Caribbean, the United Kingdom, and Ireland. It operates through two segments, Refining and Ethanol. The company also operates a 50-megawatt wind farm; convenience stores; filling stations, as well as truckstop, cardlock, and home heating oil facilities; and credit card business. Valero Energy Corporation was founded in 1955 and is headquartered in San Antonio, Texas.
    • Price to Book: 1.6
    • Price to Earnings: 8.1
    • Price to Free Cash Flow: 11.4
    • Price to Sales: 0.4
    • Enterprise Value to EBITDA: 4.4
    • Combined Rank: 50
  • United Continental Holdings, Inc. (NASDAQ:UAL) - United Continental Holdings, Inc. is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. On March 31, 2013, the Company merged United Air Lines, Inc. with Continental Airlines, Inc. to form one legal entity with Continental continuing as the surviving corporation. Continental's name was subsequently changed to United Airlines, Inc. United's operating revenues and operating expenses comprise nearly 100% of UAL's revenues and operating expenses.
    • Price to Book: 2.3
    • Price to Earnings: 3.0
    • Price to Free Cash Flow: 6.7
    • Price to Sales: 0.5
    • Enterprise Value to EBITDA: 3.9
    • Combined Rank: 52
  • Western Digital, Corp. (NYSE:WDC) - Western Digital Corporation, together with its subsidiaries, engages in the development, manufacture, sale, and provision of data storage solutions that enable consumers, businesses, governments, and other organizations to create, manage, experience, and preserve digital content worldwide. The company's product portfolio includes hard disk drives (HDDs), solid-state drives (SSDs), direct attached storage solutions, personal cloud network attached storage solutions, and public and private cloud data center storage solutions. In addition, it provides consumer electronics solutions, including DVRs, gaming consoles, security surveillance, systems, set top boxes, camcorders, multi-function printers, and entertainment and automobile navigation systems. Western Digital Corporation was founded in 1970 and is headquartered in Irvine, California.
    • Price to Book: 1.2
    • Price to Earnings: 9.9
    • Price to Free Cash Flow: 11.1
    • Price to Sales: 1.0
    • Enterprise Value to EBITDA: 3.5
    • Combined Rank: 70
  • Marathon Petroleum, Corp. (NYSE:MPC) - Marathon Petroleum Corporation, together with its subsidiaries, engages in refining, marketing, retailing, and transporting petroleum products primarily in the United States. It operates through three segments: Refining & Marketing, Speedway, and Midstream. The company markets its refined products to resellers, consumers, independent retailers, wholesale customers, marathon-branded independent entrepreneurs, its Speedway convenience stores, airlines, transportation companies, and utility companies, as well as exports its refined products. It was incorporated in 2009 and is headquartered in Findlay, Ohio.
    • Price to Book: 1.5
    • Price to Earnings: 7.0
    • Price to Free Cash Flow: 19.9
    • Price to Sales: 0.4
    • Enterprise Value to EBITDA: 6.1
    • Combined Rank: 82
  • Tesoro Corp. (TSO) - Tesoro Corporation operates as an independent petroleum refining, logistics, and marketing company in the United States. Its Refining segment refines crude oil and other feed stocks into transportation fuels, such as gasoline, gasoline blend stocks, jet fuel, and diesel fuel, as well as other products, including heavy fuel oils, liquefied petroleum gas, petroleum coke, calcined coke, and asphalt. The company's TLLP segment owns and operates four natural gas processing complexes and one fractionation facility. The company's Marketing segment sells gasoline and diesel fuel through retail stations, and third-party branded dealers and distributors in the western United States.
    • Price to Book: 2.1
    • Price to Earnings: 7.0
    • Price to Free Cash Flow: 19.0
    • Price to Sales: 0.5
    • Enterprise Value to EBITDA: 4.5
    • Combined Rank: 85


A good way to implement this strategy is by regularly investing equal amounts in the qualifying stocks with the lowest combined rank.