YCharts Research released its monthly Valuation Snapshot Report for September 2014, where we found that fully nine out of 15 of the oil majors are trading in Value Score 10 (undervalued) territory.
In addition to highlighting sectors and industries screening as under- and overvalued using our distinctive relative value heat maps, we display a series of graphs showing market- and sector-level valuation, profitability, and returns metrics as well as data tables of individual stocks that are screening as most under- and over-valued.
If you are looking for guidance regarding how to tilt your portfolio or where to look for the best investment ideas, this report may be just the tool for you.
This report was released last week to subscribers to the YCharts Research mailing list. To sign up to receive our reports as soon as they come out and to read the YCharts Sector Report for September, please Click Here.
It was just three years ago that Berkshire Hathaway (BRK.B) stock was unloved enough for Warren Buffett and Charlie Munger to codify that they would consider stock repurchases if the price-to-book-value ratio made its way down to the vicinity of 1.1x.
Here’s how “badly” Berkshire Hathaway stock was trailing the market coming out of the ’08-’09 bear market up until the formalization of the buyback ground rules.
In late 2012 Berkshire in fact repurchased more than $1 billion (buying back from a shareholder) and announced it was raising its buyback floor to 1.2x book value, which was close to where the stock was trading at that juncture. There were no additional buybacks, but for the naysayers, the next time Berkshire trades down to that level you might want to take notice. Price to book value is now 1.4x, and the dividend-less Berkshire stock has easily outpaced the total return for the SPDR S&P 500 ETF (SPY):
YCharts Research's most recent deep-dive report, analyzing U.S. industrial giant General Electric (GE) is available for download. The report:
1) Provides an objective summary of GE's transformational business strategy,
2) Analyzes GE's historical operating data and performance, and
3) Estimates GE's fair value using a transparent, data-driven methodology.
Click Here to download a copy of our GE Focus Report and sign up to receive future YCharts Research company-specific, sector-level, and custom research reports as they are published.
GE's revenues have flagged over the past few years, and its share price has underperformed the market. Investors are frustrated, but we believe there are several factors that will boost future revenues and allow for investors in GE stock to once again feel good about their investment.
Xoom (XOOM), a digital money transfer company, has a board full of VCs, a 10-K that talks about the “antiquated” business model of its far-bigger competitor, without actually naming Western Union (WU) in that passage, and declares: “Our modern digital platforms disrupt the traditional forms of money transfer.”
Xoom also has a stock that has underperformed Western Union – and the broader market, as measured by the S&P 500 – since its February 21, 2013 initial public offering; a CEO who is already unloading Xoom shares in an automatic selling program; and a big hole in the story it seeks to tell: Western Union, in addition to its hugely profitable cash-changing-hands system of money transfer, supported by some 500,000 agents in more than 200 countries, has its own digital money transfer business and it’s bigger than Xoom and just might be growing more rapidly.
Who’s being disrupted, now?
At this market juncture, a low-volatility approach to the stock side of your portfolio has some obvious charms. While the latest Barron’s roundup of investment strategists found no bears, there is a healthy respect for the fact that the market, while not overstretched, isn’t a valuation lay-up either. In that environment, sticking with stocks but tilting to those with more downside ballast seems timely.
We’ve written about the low-volatility anomaly at YCharts. Bucking conventional wisdom and myriad cognitive biases, the basic gist is that stocks with lower volatility have outperformed higher volatility stocks over the long-term, while also (obviously) doing that with less volatility. A recent note from Research Affiliates reported that back-testing from 1967 through 2012, low volatility U.S. stocks generated an annualized return of 11.6% vs. 9.8% for a benchmark, with about 25% less volatility.
If you’re on board with the low-volatility approach, this stock chart showing the lagging performance of the $4.6 billion PowerShares S&P 500 Low Volatility ETF (SPLV) compared to the SPDR S&P 500 ETF (SPY) and the PowerShares S&P 500 High Beta ETF (SPHB) will be expected, and not entirely unwelcome.
Early last week, YCharts Research published an in-depth company report for General Electric (GE). The report:
1) Provides an objective summary of GE's new business strategy,
2) Analyzes GE's historical operating data and performance, and
3) Uses a transparent, data-driven method to estimate GE's fair value.
Click Here to download a copy of our GE Focus Report and sign up to receive future YCharts company-specific, sector-level, and custom research reports as they are published.
Below is an excerpt.
The Dark Side of American Exceptionalism
GE’s transformation from a pioneer in electrical power and radio in the early twentieth century to an ungainly conglomerate in the post-War boom years, to a scientifically managed bureaucracy in the post-Nixon years, to a wheeling-dealing quasi-hedge fund run by a celebrity manager in the 1980s and 1990s, shows an uncanny parallel to the development of ascendant American economic empire in the twentieth century.
Starting with Jack Welch’s tenure, GE began to expand overseas and derive more and more revenues and profits through its international operations. This trend has continued and expanded under Jeff Immelt’s tenure, with the majority of GE’s revenues now generated outside the U.S.; again displaying a trend that is uncannily and—for middle-class Americans—unhappily reminiscent of current American business culture.
This author admires the technical and commercial competence of General Electric, but is irked by the larger trends symbolized by this company’s business practices.
Since we wrote admiringly about Outerwall (OUTR) on May 14, the stock is off about 14% and the percentage of shares outstanding sold short it up, a discouraging sign at the operator of movie rental vending machines.
But a longer version of that same chart shows that bears have built up huge short positions in Outerwall repeatedly in recent years, believing the company is soon to follow Blockbuster into oblivion, and that it instead has so far enjoyed remarkable success.
Few stocks have gotten as much disrespect from the editors of YCharts, including yours truly, as Staples (SPLS), long the category killer among office supply retailers but of late suffering the general decline of its industry and fierce competition from Amazon (AMZN) and Wal-mart (WMT).
So, when an analyst suggested earlier this week that Staples and its largest remaining traditional competitor, Office Depot (ODP), ought to merge, sending the shares of each company up sharply, it was a good occasion to rethink all the unkind things we’ve said about Staples.
Just a few days earlier, we’d also witnessed Richard Pzena, CEO of Pzena Investment Management, touting Staples stock in an extensive Q&A in Barron’s. Pzena wasn’t talking about a merger, rather just that Staples is cheap, has a fat dividend yield at this price, and, he hopes, can cut costs and restructure its operations to focus more on business customers and less on consumers.
Everyone who read YCharts Research’s recent Competitive Snapshot Report on the Diversified Industrials industry knows that the secret to GE’s industry-beating profitability lies in its financing arm.
Source: Company Statements, YCharts Research
However, the higher margins of a financing business compared to an industrial one is just part—and arguably not the most important part—of GE Capital’s effect on the firm’s overall profitability.
The latest upward revision in second quarter GDP growth tips the balance even more toward a hike in the Federal Funds rate sooner than later. While there’s some debate whether the Federal Reserve starts its march toward rate normalization in the first or second quarter of 2015, the time to adapt your fixed income portfolio is now. As Anthony Valeri, Investment Strategist at LPL Financial recently pointed out, the bond market has a habit of sending yields up about four to six months ahead of the first Fed Funds hike.
Some history in a few charts, starting with the 1994 rate hike. Coming out of the early 1990s recession the Federal Reserve pushed its Federal Funds rate to around 3% where it stayed through 1993.
In early 1994 the Federal Reserve began to ratchet up the Federal Funds rate, but as seen in this chart, the 10-year Treasury had already had a move up of more than 50 basis points before the Federal Reserve kicked into tightening mode.
- pharma stocks
- tech stocks
- stocks that look cheap
- stocks that look pricey
- money managers
- retail stocks
- value investing
- dividend growth
- stock buybacks
- income investing
- growth stocks
- energy stocks
- earnings season
- warren buffett
- bank stocks
- stock screener
- short sellers
- dividend yields
- dividend yield
- healthcare stocks
- interest rates
- entertainment stocks
- federal reserve
- CEO & Publisher Shawn Carpenter
- Editor Jeff Bailey
- Contributing Editors Dee Gill, Carla Fried, Emily Lambert, Bill Barnhart, Kathy Kristof, Stephane Fitch, Larry Barrett, Bill Bulkeley, Mark Henricks, Suzanne McGee, Ed Silverman, David J. Phillips, Katherine Reynolds Lewis, Theo Francis, Condrad de Aenlle, Amy Merrick