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

To: Spekulatius who wrote (33611)	2/22/2009 1:27:26 PM
From: Jurgis Bekepuris	Respond to of 78958

ROIC and margin formulas are concerned I say use either one or the other.Using both amounts to double counting, IMO. Not really. ROE/ROIC may be high even when margin is low. Net margin = earnings/sales ROE = earnings/equity = earnings/(assets - liabilities) Low net margin, high roe just means that sales/equity is high. For net margin of 3%, to get 15% roe, sales/equity will have to be 5/1. You can substitute equity with IC, the result is still mostly the same, it just constrains the business differently (can't use debt but can hold cash). Sales/equity can be high either in a business where capital requirements are low or where sales turns are very rapid. It is possible to analyze deeper and find out exactly what raises this ratio. Canonical examples are WMT and DELL (at least historically). There is no direct double counting.

To: Spekulatius who wrote (33611)	2/22/2009 5:27:51 PM
From: Paul Senior	Read Replies (3) \| Respond to of 78958

Yes, nothing seems to be working these days. My formulas seem to be irrelevant. There's a lot going on in making an investment decision. And we all bring our own unique background to it. In another life I was a student of Dr. W.Edwards Deming and his methods of quality management. The essence of what I've carried over is this: Information is not knowledge. Knowledge depends on theory. Having experience in buying/selling stocks teaches us nothing unless one puts it up against a theory of and about valuation. To me, a theory means something concrete I can objectively look at, and that leads me to a requirement for a formula. At this point, being still a work in progress, I'd rather not focus on the contents specific to my formula. As I say, it all might be irrelevant anyway. Take NVS, for which I ask your opinion (and of others who might be following it). It has a 19% net profit margin and 21% operating margin currently (latest Yahoo numbers). Over the past ten years it's averaged 17.7%. Psr is relatively low at a little over two, stock is hitting 12-mo. low, p/e at 11.4 (ttm)is at low compared to past yearly averages, dividend yield is over 4%. I am considering making a small buy. Would such a stock be so low in price that it would fit anybody's model/formula, assuming they used a model or formula? Fits okay for me regarding profit margins. Regarding 17.7% ROE, that is marginally okay at current stock price, by my calculations. Where I sense I'm really weak is, if given that NVS is cheap, and if capital to be allocated is limited, where does NVS stand in relation to all the other cheap stocks that are comparable? Perhaps other big pharma's are cheaper and better buys. SI shows "P/E as % of Sector Segment" = 85%, so NVS seems to be in the ballpark with other pharma's (as regards p/e). There still might be cheaper better buys out there though.