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

To: Paul Senior who wrote (16360)	2/5/2003 4:12:13 AM
From: Dale Baker	Read Replies (1) \| Respond to of 78666

We haven't talked about newsletters much but this piece on NFI from Mark Hulber, the newsletter guru, is an interesting perspective: If you could pick just one stock... By Mark Hulbert, CBS.MarketWatch.com Last Update: 12:02 AM ET Feb. 5, 2003 ANNANDALE, Va. (CBS.MW) -- How would you like to buy a stock whose earnings per share have more than doubled over the past year and which also sports a dividend yield of more than 18 percent? I thought you would. And so does Dennis Slothower, editor of the Stealth Stocks newsletter. In fact, this stock is the only one that he currently recommends to subscribers, as he otherwise believes cash is the best investment right now. The stock is NovaStar Financial (NFI: news, chart, profile), a real estate investment trust. However, on the theory that something that appears too good to be true often is, I'm devoting this column to mining the Hulbert Financial Digest database to see what additional light can be shed on this stock. This performs a real service, if I say so myself, because NFI is not widely followed by Wall Street brokerage firms. Standard & Poor's Corp. identifies just one national brokerage firm that regularly monitors the company and just one regional firm, for example. In any case, newsletters -- unlike brokerage firms -- provide an independent and unbiased perspective, since they are unmotivated by the prospect of investment banking business. The first step in my investigation was to query the Hulbert Financial Digest database for any other newsletters besides Slothower's that currently own NFI in their model portfolios. I discovered one other: Listed Insight, published by Jim Collins (who also edits OTC Insight and Biotech Investor Insight). This is my first step in researching a stock because placing a stock in a model portfolio is the highest tribute a newsletter editor can give a stock -- higher, in fact, than a "buy" or even a "strong buy" rating. The fact that another newsletter editor agrees with Slothower about NFI is a positive sign. The next step in my examination: Find out if any other newsletters have recently sold NFI from their model portfolios. It would have been a warning flag if there were. But there was none among the 160-plus newsletters tracked by the HFD over the last year. The third step in my investigation of NFI: Check Slothower's and Collins' track records. It turns out that both have beaten the stock market with their respective letters -- not just with the two of their services whose model portfolios currently own NFI, but each of their other newsletters as well. (The only exception is Collins' Biotech Investor Insight--though because the HFD has tracked this letter only since last summer, the jury is still out.) As the final step I turned to the stock screening services that appraise hundreds, if not thousands, on a single rating scale. These screening services are already a valuable source of insight, and they will become increasingly important in the months and years to come -- since the settlement between the large Wall Street brokerage firms and New York Attorney General Eliot Spitzer compels those firms to regularly report the conclusions reached by independent research. The best-known of these independent firms -- Value Line, Inc. and Standard & Poor's Corp. -- do not rate NFI. But a handful of others that the HFD tracks do. Here's what three of them have to say about the stock: Ford Equity Research (publisher of Ford Investment Review): NFI has a Quality Rating of "C", its lowest rating. This rating "is based upon overall financial strength and earnings predictability. It can be used as a tool to reduce risk." NFI thus is considered to be a high-risk investment. PortfolioGrader.com (published by Louis Navellier, who also publishes MPT Review and Blue Chip Growth Letter): NFI has a grade of B on an A to F schedule, which Navellier translates as a "buy" rating (though not as strong a "buy" as an "A" grade). Zacks Adviser: NFI is rated "1" on a 1-to-5 scale, its highest rating, a "strong buy." The bottom line from the investment newsletter community? While high risk, NFI is an attractive speculation.

To: Paul Senior who wrote (16360)	2/5/2003 9:37:31 PM
From: Spekulatius	Read Replies (1) \| Respond to of 78666

I found a simple dividend model insufficient. What i do is 1) estimate a growth rate for earnings and dividends for the next ten years (mostly i assume that dividends grow with the same rate than earnings) 2) Calculate a stock value in 10 years based on an estimated PE ratio and the earnings the stock may have after 10 years. 3) calculate the NPV of 10 years of dividends and the stock (discounted with the discount rate, the sum of which is the NPV) So in my model, I assume that i will hold the stock for 10 years and collect the dividends and then sell the stock. For growth rates, I mostly use a rate somewhat lower than what analysts are estimating. The debt /equity ratio is just one of the risk factors. other risk factors are: market share, industry, competitive position etc. The higher the overall risk the higher i choose my discount rate.