Just when I thought Mr Market was going to give a really big buying opportunity for value investors, he continues to do what he’s done all year.
Dance and tease.
But I hope he falls flat on his face, at which time it’ll be our turn on the dance floor.
I forgot to show the historical performances of the value screeners in the 2014 performance update.
Click to enlarge the image or just go to the screener page directly.
Some Updates to the Historical Results
The historical results changed slightly.
It has become more conservative as I included simulations to include more fees and limit how much of a single stock can be held.
The table can definitely be improved by showing how many stocks were held for a particular year. For portfolio that hold small stocks, this really affects the performance of screens and something to be aware of.
Color coding has been added where red indicates under performance and green is over performance compared to its benchmark.
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Keep It In Context
These numbers all look impressive, but remember that they are still theoretical results.
I try to factor in as real life costs into every screen, but it’s not perfect.
Don’t blindly follow other strategies on the internet showing huge returns which turn out to be unrealistic. I wrote about the issues with the AAII stock screens before.
Although the NNWC strategy leads the pack with a 19.39% annualized return, the portfolio held less than 10 stocks many times over the last 15 years. That’s not good.
I’ve attached a file below with information to all the 2015 stocks. There are:
- 12 NNWC stocks
- 8 NCAV stocks that trade below 2/3 of its NCAV
- 10 negative enterprise value stocks
- 15 stocks that meet the original Piotroski criteria
The best requirement is to hold 20 stocks.
Most Reliable Value Stock Strategy?
The value strategy with the best performance and reliabilty over the past 15 years has been the Graham’s Formula valuation screen.
This method looks for stocks trading below 2/3 of my adjusted version of the Graham formula.
It’s only underperformed 3 times over the past 15 years.
The original Piotroski screen and the Magic formula is close behind.
Although the Graham Formulas method is the most reliable, it obviously gives up returns compared to the “wilder” strategies like negative enterprise value and NNWC.
The 2015 List – Download a List of 225 Value Stock Opportunities
Here’s a list of 225 stocks you can go through over the year.
Not every stock is investable, but it should provide you with plenty of ideas throughout the year.
I like to just run my stock analyzer through each stock, do a quick check on the fundamentals and then filter the list down further.
Doing all 225 by hand is painful so that’s where tools and other services will help. Use your favorite site/service to help you if you are keen to find undiscovered or overlooked opportunities.
But I’m confident that the old school value analyzer will really help you with this.
To download the file, simply click any of the buttons below to unlock the download link.
(If reading via email or RSS, download from the website directly)
Here is a look at 5 stocks from this years list.
Magic Formula Stock
When I look at the entire list of stocks in the Magic formula stocks, a lot of them are associated with negative news.
Gun stocks, for profit education, political issues, and Herbalife…
Logically, it’s tough to invest in these names at the moment, but these hated stocks may prove to outperform everyone’s expectations this year.
Operates in 3 main segments of search, tax software and ecommerce.
Their core business of search has really struggled ever since Google didn’t renew their mobile search contract. The dynamic shifting nature of online and mobile search has hit them hard.
However, their FCF ability is still amazing and a lot of the negative news is already included in the stock price.
A lot of their fundamental numbers are down from previous years.
Here’s a look from the ratios section of the OSV analyzer.
A relative analysis like this by comparing how the company has done helps to give a picture of the business ups and downs. Puts the current price into perspective too.
But with a Magic formula yield of 11.8% and EV/EBIT between 8-9, BCOR shows up in the screen results and is one of the more promising stocks if you can wait for the negativity to get washed out.
When there is so much bad press baked into a stock, a tiny bit of positive news will make it go up in leaps and bounds.
That’s the idea behind this screen which looks for larger cap companies with good fundamentals trading at low multiples with low expectations of growth.
ITT Educational Services Inc (ESI)
I don’t try to be contrarian or advocate being a contrarian just for the sake of it.
ESI is definitely not for the faint of heart with all the issues it’s having.
But with the company now being more transparent and willing to work with the Department of Education, ESI could be a cheap buy in the for profit space.
The company hasn’t filed for a while but based on the last filing, and reverse engineering what market expectations are, the current price holds severely pessimistic views.
Using the Reverse Graham Formula method from the Graham Valuation section of the OSV analyzer, ESI has 1% growth projected in its stock price.
Here’s I’m using the consensus analyst EPS target and then playing with the growth number until it matches the intrinsic value.
Best Piotroski Criteria
The stocks in this list focus on three criteria from the Piotroski score.
- Current ratios > previous current ratio
- Reduced shares outstanding
- Positive net income
Nothing difficult or complex.
Dover Corp (DOV)
Dover fits the above criteria easily.
- Current ratio has improved to 2.24 compared to 2.01.
- Diluted shares outstanding is now 168.3m vs 173.5m one year ago.
- Net income is easily positive with a 9.7% margin.
Dover was also affected with the slumping of oil prices as 25% of its revenues is related to the energy sector. The company offers equipment to the drilling and production companies so they are not affected directly by the price of oil.
FCF has dropped in the last year but the fundamentals are solid with a fair valuation, if not a little overpriced.
I’d like to see the company drop below $70 before considering buying some shares.
See what I mean with these ratios.
Perfect Piotroski Score Stocks
The list of stocks in this years Piotroski list look very promising.
These are great businesses with wonderful fundamentals.
Valuation isn’t a focus here. It’s all about finding businesses that continue to improve and meet operating excellence.
Snap-on Inc (SNA)
Take SNA for example.
When I run the numbers, it’s not cheap.
Even if I found this business one or two years ago, I probably wouldn’t have bought it.
But quality has a way of helping the stock price continue on up.
The business improvement and sound financials is something that other companies should envy.
With only 5 analysts covering the company, it’s still relatively unknown. Selling power tools, diagnostic software and vehicle shop equipment isn’t sexy but it’s rewarding shareholders.
See the detailed Piotroski scores for SNA below.
A perfect 9/9 with the TTM numbers. The Piotroski score is displayed in the “Quality” section of the analyzer and you can drill down deep by going through the accruals, Altman scores, and DuPont models to really nail down what the quality is attributable to.
Net Net Working Capital Stock
Looking for ugly cigar butt companies with one last puff?
Emerson Radio (MSN)
Current price as I write this is $1.01 per share with;
- book value of $2.10/share
- NCAV of $2.02/share
- NNWC of $1.68/share
To really get into MSN and net net stocks, it’s best to apply a net net checklist.
Net nets have issues. Some are obvious and some are hidden.
In the case of MSN, there are tax concerns but given the current discount, you need to decide how much of the downside is protected. Then protect yourself further with proper asset allocation.
The current price is a whopping 40% discount to the NNWC and 50% discount to NCAV.
One of goals is to always analyze as many stocks as possible every year.
Download a List of 225 Value Stock Opportunities
With 225 stocks, there’s a ton of quality stock ideas that you can go through.
Download it by clicking any of the buttons from this article.
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