Category Archives: Equity Analysis

Yet Another Reason to Pay Attention to Value Stock Models

2016 began with a sharp spike in volatility with investors concerned the bull cycle could be over.  Now is more than ever a great time to consider value stocks to remove risk in your stock portfolios.  I have been cautious for over a year now and have a 12-month period to show results versus my two benchmarks, the Vanguard Total Stock Market ETF (VTI) and the S&P 500 Dividend Aristocrats ETF (NOBL).  Since last March, the Value Portfolio has outperformed VTI by 15.4% and NOBL by 9.5%.  Click here to see the March 2016 picks for value stocks in the Value Portfolio.

Value Stocks

the Value Portfolio performance

Ranking the Dividend Champions

The Dividend Champions, created and maintained by David Fish is a list of dividend stocks that meet the same difficult criteria as the S&P 500 Dividend Aristocrats -25+ years of consecutive dividend payments- but includes stocks outside of the S&P 500.  In all, there are currently 105 dividend stocks on the list.  I apply a fundamental value ranking method using my econometric model fitted using the dividend aristocrats from 1992-2008.  For the full article, click here.

Revisiting the S&P 500 Dividend Aristocrats fundamental model

Due to the interest in my latest article on the S&P 500 Dividend Aristocrats (Finding Value in the Dividends Aristocrats List) and the discussion about backtesting, I thought I would share the empirical model I developed a few years back for forecasting total returns for The Value Portfolio (the 5 most undervalued stocks in the index).  To outline the importance of value, I also created a portfolio of the 5 most expensive – The Underperform Portfolio.  The results from 12 quarterly periods compared to the benchmark Dividend Aristocrats index outside of the model fitting period are shown in the chart.  The full model is provided in xls linked below.

Model Portfolio


Are there any Value Stocks in the U.S. Apparel Store Industry?

The Apparel Store industry saw a glut of competition, excess store inventories, heavy discounting, and reduced mall traffic resulting in dismal earnings, top executive position vacancies, and huge hits in market cap levels.  Many Apparel companies have been able to rebound from their low prices in 2014, offering returns above the S&P 500 over the past 52 weeks.  Is it too late to consider any of these companies value stocks?  To answer this question, I ran some objective analysis. To see the full report, click here.

Equity Analysis: Is the Storm Over at Mattel?

Four days after Mattel CEO is ousted, the CFO and new Interim CEO had an investor call to outline the financial performance.  As a follow-up to the equity analysis from the previous articles, there is evidence that the storm could be over for Mattel and 2015 will face tailwinds and much easier comps as the company looks to recover from a disaster in 2014.  For a summary of the earnings call discussion and 2014 year end performance, click here.

Lofty Dividends with MEGA Brands in Mattel’s Hands

Given the stock market’s increased interest in Mattel, Inc. and the fact that it has now reached my price target range from 12/25, I decided to play devil’s advocate (as anyone should when evaluating stocks to invest in) and take a closer look at MEGA Brands’ historic performance and Barbie’s decline in popularity.

Note, there is now a Portfolio Performance Tracker that can be accessed on the Value Portfolio menu bar.

To see the follow up article click here.  

What is value investing in the stock market?

Value Investing is the time-tested approach to simply evaluating the stock market and choosing the best individual stocks to invest in.  Value investing relies upon strong underlying fundamentals that set the stock apart from the rest of the stock market.  Value investments are conservatively valued and provide opportunity for strong total returns, with a strong “margin of safety” should adverse events occur.

Let’s be clear however.  As Graham points out in Security Analysis, it is not an exact science: “The essential point (of intrinsic value) is that security analysis does not seek to determine exactly what is the intrinsic value of a given security. It needs only to establish either that the value is adequate -e.g., to protect a bond or to considerable lower than the market price. For such purposes an indefinite and approximate measure o f the intrinsic value may be sufficient.” (Graham, p.66)

The premise behind value investing or picking the best value stocks is to minimize the risk of investment as defined by Benjamin Graham – permanent loss associated with acquiring a stock.  If the stock is conservatively valued when purchased and held, the investor should be indifferent to the overall stock market increasing or decreasing.

Labeling a stock a value investment does not make any assumption of its overall stock market outperformance over any defined period.  Never let anyone convince you that they can accurately predict what will happen in the market and which stocks will perform the best.  In some instances, value stocks perform worse than the overall market (its financial conditions deteriorate or simply the market speculatively favors other companies).

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