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

To: IndependentValue who wrote (55674)	7/12/2015 7:40:53 PM
From: Graham Osborn	Read Replies (1) \| Respond to of 78673

Hi IV, So if you run a hybrid Buffett/ Graham screen right now with ROIC > 10%, D/E < 0.5, 5-year rev growth > 15%, 5-year tbook growth > 15%, PE < 10, PB < 2, I pull up some "has-been" E&Ps (including my favorite has-been BNKJF), a couple semi-semi equips, a couple commodity plays, a couple banks and insurers, a small airline. So you're basing laboring under the handicap of ttm numbers for industries at inflection. For that reason I tend to avoid income-dependent multiples. I also dislike book-dependent (except tbook-dependent) multiples for my combined screens. For CFS I like EV/ EBITDA. In principle EV/ FCF should be a great screen but in practice FCF can be so variable that it tends to miss good companies such as growth cyclicals. I like PE only with DE and PE 5 as qualifiers. I like ROE only with minimal leverage and a reasonable P/ tbook. ROIC is again income-dependent and harder to use during a mature bull market. Two I love are rev growth and tbook growth because they're less susceptible to the short-term misfortunes that produce opportunities for the value investor and instead focus on long-term organic growth and value creation. Or you could just swear off screening altogether; I'm trying real hard to reduce my reliance :) Graham

To: IndependentValue who wrote (55674)	7/13/2015 10:04:57 AM
From: Paul Senior	Read Replies (1) \| Respond to of 78673

what are peoples views on investing in cheap (value) stocks that may have many of the attributes that we all seek (good underlying business, prospects, management, track-record, cash-flow etc.) but which have low or modest returns on capital (e.g. sub-15% ROIC or even ROE)? I buy them if they are cheap enough in my view. Do you have any specific stocks in mind to mention? ... but then when I get to ROIC I see 11% or maybe 13% and can't help but feel suddenly look-warm at best on it as an investment opportunity I find that to be only a determinant as to how big a commitment I will make to the stock. If the stock meets my criteria for purchase, I find for me it's usually better to make some commitment regardless.

To: IndependentValue who wrote (55674)	7/22/2015 10:22:25 PM
From: Shane M	2 Recommendations Recommended By MCsweet Spekulatius Read Replies (2) \| Respond to of 78673

IV, Wes Gray at alphaarchitect has done research showing that a pretty simple value measure like EBIT/EV is effective in generating excess returns. His process supplements a few other factors, but adding a quality component to his process doesn't add much to a simple stand-alone valuation measure. (He outlines a modified version of Greenblatt's Magic formula approach to incorporate quality, but if I recall the EBIT/EV multiple provided most of the returns). I don't have his book handy, but EBIT/EV as a simple standalone measure applied in a persistent quantitative way worked surprisingly well. Personally, I prefer "better" companies to simply value companies, but it's for psychological reasons as much as anything. I can stick in there better and better hold through bad times with good companies. I'm a weak hand if I invest in cheap, junk companies. As a result, I'm generally not interested in the deep value stocks: they don't gel well with my personality.