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Strategies & Market Trends : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: Shane M who wrote (2728)	1/16/2001 8:29:23 PM
From: Moominoid	Read Replies (1) \| Respond to of 4690

I'm trying to find stocks with a high consistent growth rate of earnings and high rate of return. ROE can be an indicator but I guess as an economist I can see some problems with it. I started looking at the EBITDA rate of return on Assets. Either way the theory is that with a high rate of return the amount of earnings needed to be absorbed in investment for growth will be lower and so free cash flow higher. I have tried to use a simple discounted cashflow model on this basis (same for all firms) just plug a set of numbers into a spreadsheet and use the CAPM discount rate. Trouble is high beta stocks like DELL seem overvalued and low beta ones like Safeway very undervalued. The choice of beta can have a huge impact on the price. Seems like ignoring beta (as Buffett does) will get results closer to market values. David