Some Of The World’s Best Businesses Are Trading At Up To 50% Discounts
Progress on trade negotiations and better-than-feared Q1 earnings fueled gains in stock prices last week. But even with the rebound that’s brought the S&P 500 to within just 5% of its all-time high, we’re finding some of the world’s best businesses trading at discounts of up to 50% below their historic valuations.
In today’s Saturday Stock Screen, we’re showcasing some of these opportunities that caught our attention this week.
Each week, here at Porter & Co. we apply our brainpower to uncover the most compelling, highest-upside investment ideas. And with this complimentary issue of the Daily Journal, we draw the curtain back to show you how we do it.
An important tool in our analytical toolbox is our stock screens, in which apply a list of criteria – relating to different financial, accounting, and performance parameters – to sift through the 3,000+ publicly traded stocks on U.S. markets. That’s how we are able to identify the tiny fraction of the universe of U.S.-listed stocks that offer the best opportunities for making money.
We often use the results from these screens as a starting point for more in-depth analysis for possible inclusion in The Big Secret On Wall Street portfolio.
For Partner Pass members, we’ll often highlight an opportunity from the screen, or elsewhere, that appears particularly compelling – not as an official recommendation, but as a stock that’s on our radar.
Questions about our Saturday Stock Screen?… drop me an email at porterstansberrydirect@gmail.com.
The filtering tool we’re showcasing this week is named “The World’s Best Businesses At Discounted Prices Screen.”
We created this screen to identify capital efficient business models that not only generate above-average cash flow, but that return a barrel of cash to shareholders as well. We also added a screening criteria to identify when these businesses trade at discounts to their historic valuations, as detailed below:
- Return on assets (“ROA”) exceeding 15% over the last five years, as a filter for capital efficiency
- Free cash flow (“FCF”) margins exceeding 10% over the last five years, to select for businesses with above-average cash flow generation
- Shareholder returns (including dividends and buybacks) that exceed 10% of the total market capitalization of the business over the last five years
- Annual revenue increasing at more than 4% over the last five years, to select for businesses with steady growth
- Market capitalization over $1 billion to exclude micro-cap, low-liquidity stocks
We rank each of the stocks from this screen based on their current valuation versus their 10-year average, defined as the enterprise value (market capitalization plus net debt) to free cash flow (“EV/FCF”) multiple.
As of Thursday’s close, this screen produced the following 25 stocks, ranked in order from greatest valuation discount to least:
Highs And Lows
Each week, we also monitor any stocks making new 52-week highs. We do this because any stock on its way to generating 2x, 3x, or 10x returns will spend a lot of time making 52-week highs along the way. Thus, the new 52-week-high list provides an opportunity to flag these potential high performers before they really break out, with a particular emphasis on lower-profile, less widely-followed stocks that might have otherwise gone unnoticed.
Notable stocks making new 52-week highs last week:
- AerCap (AER)
- Air Lease (AL)
- Altria (MO)
- Barclays (BCS)
- British American Tobacco (BTI)
- Cardinal Health (CAH)
- Fresenius Medical Care (FMS)
- Hartford Insurance (HIG)
- Heritage Insurance (HRTG)
- Philip Morris International (PM)
- Rollins (ROL)
- Sandstorm Gold (SAND)
- SAP (SAP)
- Tootsie Roll Industries (TR)
- Stride (LRN)
- Universal Insurance (UVE)
- Weis Markets (WMK)
We also monitor stocks on the new 52-week-low list. In many cases, the names on this list are there for good reason – the market is correctly pricing in their weak fundamentals. However, once in a while, a great business with excellent long-term prospects finds itself on this list due to a temporary setback. This can create the rare opportunity to buy top-shelf merchandise at bargain-basement prices.
Notable stocks making new 52-week lows last week:
- ACCO Brands (ACCO)
- Becton, Dickinson, And Company (BDX)
- Builders FirstSource (BLDR)
- Church & Dwight (CHD)
- General Mills (GIS)
- Huntsman (HUN)
- Sturm, Ruger & Company (RGR)
- Thermo Fisher Scientific (TMO)
- Utz Brands (UTZ)
- Westlake (WLK)
- WK Kellog (KLG)
Porter Stansberry
Stevenson, Maryland
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