Wednesday, February 4, 2009

Super Values Today

Written By: Andrew Giovinazzi

Let's start by using the standard metrics for value, Low P/E (in this case Enterprise Value/EBITDA for debt conscious times), Low Debt/Equity and a Price to Book around .8. I am looking for at least a 7% Net Income Change for companies that grow in difficult times. My new SuperValues metric would look something like this.

Next I limited my view by market cap to $2 billion or greater to see if there is any differentiation in the upper market cap tiers. Since cash or lack of it is an overriding factor, I want to sort the SuperValues metric results by TTM Growth in Cash from Operations. Stocks in Green scored very high (700+ of 1000) with most in the Mid and Large Cap range. Those on the outer edge (lower left) have very high growth in Cash from Operations. Some companies manage to do well on both the value side and growth in cash from operations.

Stocks of note are:

Wesco Financial Corp (WSC)
Thermo Fisher Scientific (TMO)
Apple, Inc. (AAPL)
CME Group (CME)
National-Oilwell Varco, Inc. (NOV)
Ensco International Inc. (ESV)
Avnet, Inc. (AVT)

After switching to a sector view [below] it becomes quite clear that we are diversified across the market. The issues identified using SuperValues metric lead or are close to leading in their sector with concentrations in certain sectors that might warrant a closer look.

The market in general is not making a distinction between leaders in Value and Cash from Operations. In fact (and what we are looking for), our SuperValues portfolio has underperformed the market by a good margin and this is where the opportunity lies for the patient investor.