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Strategies & Market Trends : Value Investing

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To: David who wrote (60132)	12/14/2017 6:47:26 PM
From: E_K_S	Read Replies (3) of 78735

RE: Newell Brands Inc. (NWL) - Started a small position @ $30.51/share w/ a 3% dividend American Railcar Industries, Inc. (ARII) - closed out position @ $39.65/share - held 14 months and book a 7% gain that includes the 4% dividend. Been wanting to start a position in NWL ever since you mentioned it and missed the good entry point. Based on 2018 earnings, the stock is 26% undervalued based on the GN valuation model. That comes out to a 1.17x BV and 10.3 Forward PE. Debt is still higher than I would like at 8.46x Net Income (would like 4x or less) but still less than many of the other GN value candidate stocks that have come up on my screen. I can do two more similar Buys at lower prices if the opportunity presents itself as I like to scale into my positions. American Railcar Industries, Inc. (ARII) was a disappointment and shows that companies that are undervalued by the GN model, future earnings expectations impact that valuation. When I bought this GN model showed it was over 30% undervalued but actual earnings were falling as well as expectations. The stock is thinly traded but I thought I would give it a chance holding just over 14 months. The dividend was 4% so it was an OK hold. The ARII GN fair value continued to fall over this period and now the model has this only 18% undervalued and future earnings expectations may even show that it is fairly valued at the current price. I basically took the proceeds from ARII and started a position in NWL. I am finding that the key to using the GN model for value investing is to focus on the Earnings and their growth and maybe one can give a bit on dividend yield and/or BV if there is a good story for positive growing earnings. It's not an exact science and w/ the market making all new highs, ARII was just an under performer. Graham said that if you did not see fair value w/i 18 months, you s/d sell and move on. Well, I gave ARII 14 months and the model was showing fair value at $46/share. NWL has almost twice the risk/reward return so that's the one I am going with now. EKS

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