Tag: Value Investing

All value-investing related articles are found here. Educative, informative and written clearly.

  • What is GARP And GARP Investing?

    What is GARP And GARP Investing?

    What is GARP And GARP Investing?
    The definition of GARP stock can vary but is based on the P/E to PEG ratio, which divides the P/E ratio by the growth rate.

    What is  GARP or longer, Growth At a Reasonable Price? Growth at a reasonable price or short GARP is an investment strategy. This strategy unites the principles of both growth and value investing. How does it do that?  When you find the companies that have consistent earnings growth but don’t sell at too high valuations. This term was introduced by investor Peter Lynch.  

    While combining principles of growth investing and value investing it serves traders to pick individual stocks. GARP investors look for companies with steady earnings growth that is higher than market levels. That means they are eliminating companies that have very high valuations. The general goal is to avoid the extremes in any type, growth, and value investing.

    GARP investors invest in growth stocks but such that have multiples low price/earnings (P/E) in average market conditions.

    What is GARP Investing?

    GARP investing or growth at a reasonable price is a combination of value and growth investing, as we said. GARP investors seek companies that are slightly undervalued but with sustainable growth potential. Their criteria are almost the mixture of those that the value and growth investors use. Stable earnings growth is still on top position as one of the most important features but also valuation has a great influence on whether they pick a particular stock or not.

    Building such a portfolio that consists of “Growth At a Reasonable Price stock” isn’t just picking the stocks with an equivalent amount of growth and value. The point is to choose the stock that each has qualities of both, value and growth.

    Aggressive growth investors never pay too much attention to the value of the stock. Here are some reasons why they should consider the value of the stock. Let’s say that growth investors profiting from stocks with excellent earnings growth. Such companies are beating all earnings estimates all the time. Do they have any guarantee that the companies will resume performing with success and how long? They could make a profit only if the company proceeds to generate high profit and grow constantly. But what will happen if it stops to do so? 

    Here we have the value in the scene. Value is important to understand the level of investors’ expectations related to the particular stock. Also, value is helpful to gauge how far some growth stock could drop if it starts to sink. To put this simple, value adds a portion of reasonable thoughts and exact estimates into the calculation. 

    How does GARP work?

    A basic formula for finding GARP is the PEG ratio. It is aimed to measure the balance between growth and value. The optimal PEG ratio should be one or under the one.

    Here is how it works. Let’s say the company is trading at $50 per share with EPS forecasted to rise for15% over the year. 

    P/E ratio = $50/$5 = $10
    PEG ratio = 10/15 = 0,66

    This PEG which is less than 1, makes this company a good candidate for GARP.

    Why does Growth At a Reasonable Price matter?

    This could be an added explanation of what is GARP. GARP helps investors to avoid the possible problems or traps that they may have with complete investing in growth or value stocks. If growth stocks rise too high they may create a bubble that could burst in a minute. On the other hand, value stocks can stay the same in the price for a long time. With GARP investors could find the golden middle zone. The investment stability where they can benefit from rising prices of growth stocks but, at the same time, they’ll be protected with value stocks if the growth starts to fall.

    Some may say that GARP stocks will underperform growth stocks in a growth market. Also, such will notice that GARP stocks will underperform value stocks too but in the value market. Despite these criticisms and objections, GARP could easily outperform in combined markets and could do it over a long time.

    What is a GARP strategy?

    It is a mixed approach to growth and value stock-picking. This kind of investor obtains a combination of returns. In other words, the GARP investing strategy is hybrid.
    In GARP investing it is necessary to look for low price/book ratios and a PEG ratio of less than one, as we said.

    P/B ratio = current price/book value per share
    PEG ratio = P/E ratio/predicted growth in earnings

    We said a GARP investor will obtain a combination of returns. This actually means, when markets are dropping it is better for value investors. Hence, markets are rising. It is better for growth investors. On the other hand, GARP investors could benefit from any market condition because they are somewhere between the mentioned types of investors but unite characteristics of both.

    What is it in essence?

    Growth At a Reasonable Price investing doesn’t have inflexible limits for adding or eliminating stocks. The basic benchmark is the PEG ratio. The PEG presents the ratio between a company’s valuation (P/E ratio) and its required earnings growth rate for the next several years, for example. If stocks have a PEG of 1 or less,  that means the P/E ratio is in line with predicted earnings growth. This helps to find a stock that is trading at a reasonable price.

    During a bear market or other declines in stocks, the returns of GARP investors could be higher than the growth investors can get. However, in comparison to the value investors, GARP investors may have average or under average returns. But since GARP investors hold stocks with characteristics of both growth and value stocks, the average returns they get is higher than average returns for growth and value investors can get from their investments separated.

    Bottom line

    GARP stocks are picked by a joining of earnings growth and valuation when investors want to evaluate the right picks. The idea behind this is to recognize cheap stocks with a growing possibility in the future. Hence, the earnings growth of GARP stocks is notable above that of the market.

    GARP is the abbreviation for “growth at a reasonable price” and represents truly a combination of value and growth investing. So, GARP investors seek for a stock that is trading for somewhat less than its predicted value but has earnings growth potential. GARP stocks are slightly lowered but can grow soon. So, what is GARP? It’s all about how to find stocks that have a future.

  • Value Investing Tools That Every Investor Must Use

    Value Investing Tools That Every Investor Must Use

    Value Investing Tools That Every Investor Must Use
    “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” – Benjamin Graham

    To find accurate value investing tools you’ll need time, a lot of it to do your homework. Finding the right tools requires a lot of research. It is the same as finding a good value stock to invest in. It can be so complicated that many investors are scared of all that job. 

    But if you don’t like to do your own research, here are some tricks to help you. 

    By having the value investing tools to value a company and evaluate its prospects, you can eliminate unsuitable stocks. Also, you can do it more quickly and focus on the best picks. One of the most accurate among value investing tools is the P/E ratio. 

    P/E ratios as value investing tools 

    The price-earnings ratio or P/E ratio is classified as a primary tool to identify undervalued or cheap stock. It is a simple metric that is easy to calculate. All you have to do is to divide a stock’s price per share by its earnings per share. Earnings per share is shortly expressed as EPS. Value investors always have the P/E ratio in their value investing tools boxes and seek a low P/E ratio. A lower ratio means that they will pay less per each dollar of the company’s current earnings.

    But this metric has some downsides. Of course, it is still a good start but if you rely on this one measure solely it is more likely your strategy will not be accurate and successful. 

    Investors are frequently attracted by low P/E ratio stocks. The problem is that they can be inaccurate and inflated numbers. Sometimes, companies report incorrectly high earnings sums or some forecasts show much higher earnings, so the low P/E ratio can be false. Everything becomes more clear after real earnings reports and the P/E ratio goes up and investors’ research result is false too.

    So, if you use the P/E ratio alone you’ll end up trapped with the wrong decision.

    Use PEG ratios as value investing tools

    If the P/E ratio is flawed, what should you do to find true value stocks? Which one of the value investing tools you have to use? PEG ratio will help you to recognize if a company with earnings growth is trading below its intrinsic value. The price-to-earnings ratio or PEG ratio can help you to avoid some traps while searching for value stocks. To calculate the PEG ratio use this formula:

    PEG Ratio = Price To Earnings Ratio / Earnings Growth Rate

    If the PEG ratio is less than 1 it is supposed to be a sign of an undervalued stock and it is possible to buy such stock at discount. So, the PEG ratio of 1 means the company is correctly valued. Contrary, if the PEG ratio is above 1 it may indicate that a stock is too expensive. But the PEG ratio shouldn’t be used as an individual metric. The valuation puzzle requires using other value investing tools to have a comprehensive picture of the stock’s value. 

    For many investors, the PEG ratio is a favorite among value investing tools due to its ability to show the stock that is at discount. However, as with all of the value investing tools the PEG ratio is useful to recognize the stock that could deserve a closer look. You’ll need more research and tools to reveal the possibility that the stock is cheap for a reason, in which case it isn’t the right choice. Simply, you wouldn’t want such stock in your investment portfolios.

    But keep in mind, for example, various industries will have different PEG ratios. So be careful when judging the company’s value.

    The company’s cash flow

    The company is worth only the amount of the future cash flows it can make from its operations. Keep this in mind. The value investors will always check the company’s cash flow before starting to invest. 

    As we noticed above, the P/E ratio is by no means a complete measure. The company’s net income is only an accounting entry and it is often influenced by numerous non-cash costs, for example, by depreciation. Also, companies use tricks to misrepresent their earnings. As a difference, cash flows measure the real money that the companies paid out or acquired over a given period. 

    Cash flows exclude the influence of non-cash accounting charges. They don’t include depreciation or amortization. So they are more objective value investing tools because they only admit the real cash that flows into or out of a company. Cash flows are a clear picture of the company’s real profitability. However, we have to repeat, it makes no sense to estimate cash flows as the only tool you use when seeking the value investment. 

    Enterprise value

    It is important to compare operating cash flow to the company’s Enterprise Value if you want a clearer picture of the amount of cash the business is generating related to its total value.

    To explain the enterprise value. 

    It is as a number that in theory outlines the full cost of a company if someone buys 100% of it. If the company is publicly-traded, this means buying up every single of the company’s shares.

    To calculate it you have to sum up the company’s market capitalization, add debt, preferred stock together, and subtract out the company’s cash balance. The result will show how much money an investor or group of them would need to buy the whole company. So, it is an outstanding picture of the total value of the company.
    When you divide a company’s operating cash flow by its enterprise value, you can easily calculate the company’s operating cash flow yield. 

    These measures are also the value investing tools. Especially cash flow yield because it presents the amount of cash that the company generates per year in comparison to the total value investors invested in the company.

    Return-on-Equity – ROE is excellent for value investing tool

    ROE is another excellent tool that can help you to find value stocks.  

    It is a profitability ratio and measures the ability of a company to generate profits from its shareholders’ investments. To put it simpler, the ROE shows how much profit generates each dollar of stockholders’ investment generates.
    The ROE of 1 indicates that every dollar of stockholders’ investments generates 1 dollar of net income. This measure shows how efficiently a company uses investors’ equity to generate net income.

    ROE is also an indicator of how efficient management is.

    The formula is 

    ROE = Net Income / Shareholders’ equity

    This measure is broadly used, and it is easy to find the ROE lists for publicly traded companies on almost all financial websites. When investors look for value investment opportunities, they are looking to find a stable or growing ROE of the company. 

    However, there are some cautions. For example, some companies can produce enormous ROE in one year, but the next one or more years later resulted in reduced profitability.

    Also, the tricky part is the relationship between ROE and debt. For example, if the company is taking higher debt loads it is possible to use debt capital instead of equity capital. Such a company will have a higher ROE. These companies with exponential and fast growth can be favorable, but also, can ruin shareholder value. Investors prefer ROE at around the average of the S&P 500. 

    Bottom line

    Sadly, there’s no fixed method that will provide investors a distinct way to reveal the best value stock for investing. Investors have to take into consideration the company’s sector and industry, also, if the company has an advantage over its peers. Look for the companies that are able to become brands, or have some unique product, the new technology, in other words, with a sustainable competitive advantage. 

    Remember, some companies operate in a cyclical market. For example, automakers. Such companies will have great growth and huge returns in periods of the rising economy but they will fail if the economy is in a slowdown. So think about the company’s profitability under all conditions. 

    These value investing tools will help you to uncover plenty of potential picks and to find a good stock to invest with trust.

  • Value Investing Is Coming Back

    Value Investing Is Coming Back

    Value Investing Is Coming Back
    Value stocks have underperformed since the beginning of 2007. But Goldman Sachs and Morgan Stanley claim that they have great potential.

    Value investing is coming back according to data from the last autumn. This granddaddy of all investment types was set up in the first half of the 20th century and it is still actual.

    For example last year, value investing has gotten fired by a typical value sector, energy. Last September made value investors satisfied, as returns of winners among cheap stocks outperformed big companies by a wide margin. The value-stock rally was exciting, unexpected, and fabulous. The past 10 years weren’t good for value investing. Actually, the value stocks were underperformed the growth stocks. They had weaker performances than it was the case with growth stocks. Moreover, some fund managers didn’t want to invest in utilities. What a great mistake! Utilities are the value stocks backbone. Their explanation was the value stocks are too expensive. Really? The fact is that utilities had a great performance last year and those managers suffered in a loss.

    Why value investing is still a good opportunity?

    Historically, they beat Grand Depression, played well during recessions, and inflation periods. Moreover, growth stocks have not become more profitable. So, the value stocks should finally be better. The reason is simple. They are unfairly cheaper. And that’s the point of value investing – finding under-appreciated stocks trading at low prices.

    The stock market analysts found that stocks traded with low P/E and P/B ratios can easily beat the wider market. This opinion is supported by the facts. 

    A historical outlook

    At the time of the financial crisis in August 2007, the S&P 500 index has returned 175%. The total return of value stocks in the US market was 120%. The return of growth stocks was fantastic 235%.  Let’s go in the past more. Almost 20 years ago, value investors were devastated. For example, in 1999 and 2000 were so bad years for the value investing that some value investors had to step out of the market and retired.

    But let’s stay for a while in 2007 and analyze growth investing deeper. What did happen? 

    That growth-strategy outperformance ended with the fall of the dot-com bubble.  Value stocks came out of favor after the 2007 Global Financial crisis. On the other hand, growth stocks are performing remarkably well. Value stocks became unfairly cheap. You can notice that investors are expecting this global trend to continue since the global economic growth is slow. So, value stocks are trading at a discount compared to its more expensive growth peers.

    But, is this discount a reason to invest in value stocks? It looks like that because value investing builds up. Slow economic growth caused value stocks to continue to produce stable free-cash flows. Yes, their businesses have slowed, but not damaged. At the same time, some of the growth stocks become extremely expensive. Moreover, the risk of failure in growth stock investing during slow economic conditions has grown.

    Value Investing continues to make the headlines and not only in the US but also in Europe. We all can witness an increased number of headlines and publications, most recently, on the coming death of value investing. But now, something has changed.

    Value investing is not dead

    Timing the market seems to be difficult for investors. The intraday volatility grew over the last year, therefore, investors prefer not to bet as it will hurt long term goals. But this situation is beneficial for value. The value stocks start to outperform.

    That will be a major market change. Value stocks’ years-long downtrend begins to turn. For some, it may seem a bit strange because investors in more cases neglect bargains. Everyone is trying to catch the major winners, famous companies, expensive stocks. They prefer to overpay some stock because of excitement. Oh, how wrong they are! But as we said, value stock investing is coming back.

    Firstly, value stocks are cheap.

    Value investing is the main principle for equity managers. There is long-term potency to buying cheap stocks over expensive growth stocks. Value investing was attractive over the entire history. Why shouldn’t it continue?
    No one could say value investing is dead. 

    Goldman Sachs predicts a new life for value investing

    Value investing has been decayed after years of underperformance. But Goldman Sachs says there’s still great growth possibilities in this classic factor strategy. And here are some reasons behind.

    Value stocks will come back in favor very soon.

    David Kostin, Goldman’s chief U.S. equity strategist explained that during the last 9 years the difference in valuation of expensive and cheap stocks was wider than ever. 

    Kostin said: “A wide distribution of price-to-earnings multiples has historically presaged strong value returns. However, a rotation into value stocks would require a sustained improvement in investor economic growth expectations, potentially driven by global monetary policy easing.”

    The renaissance is coming

    Value investing has gone out of favor particularly because the economic expansion gets stretched longer. Value brands continue to falter due to modest GDP.

    But this course could start to change for value stocks. In the US an easier monetary policy from the Federal Reserve could increase growth expectations. Also, a rate cut could support the economy additionally. Bankers announced that possibility. Also, we already saw signs of resilience in US value stocks last September. Analysts predict that value stocks could finally enjoy a rebirth in 2020. Value investing means buying stocks that are trading below their value in the hopes of notable profit when the company comes into favor. 

    By default, value stocks have underperformed since the financial crisis. The investors have shifted into more energetic growth stocks, for example into technology. But last autumn, growth stocks were trading at high valuations and they became too expensive. In the same period, value stocks have shown important strength.

    From October last year, the Russell 3000 Value index has dropped 2.4%, and the Russell 3000 Growth index has experienced a worrying 7.1% reversal. 

    Yes, growth stocks had a bounce, and outperformed value stocks. But there is some rule pointed by Morgan Stanley’s analysts. The markets are in the process of a regime change. That means the investors’ willingness to buy growth stocks will decrease as interest rates rise.

    Goldman’s High Sharpe ratio

    For investors assured on value stocks comeback, Goldman has selected value stocks with “a quality overlay.” Do you understand what does it mean?

    These stocks could easily generate three times bigger returns than the average S&P 500 company with similar volatility. It is Goldman’s Sharpe ratio basket composed of 50 S&P 500 stocks with the highest ratios. This ratio measures a stock’s performance related to its volatility. 

    Goldman named the stocks with the highest earnings-related upside to consensus target prices. That are Qualcomm, Western Digital, Marathon Petroleum, Halliburton, Facebook, and Salesforce.

    Bottom line

    Many of the world’s most successful investors hold value stocks. They are buying cheap value stocks and benefit as the companies manage to work better.

    For this to work, the stock has to stay cheap, so the company spends money on tremendous dividends and buybacks. The other option is the company be re-valued at a more relevant valuation, meaning more expensive. That is happening when the market recognizes the previous mistake in valuation.

    For example, take a look at Altria (MO).

    When the evidence about how toxic smoking is, appears to the public and more and more people stopped to smoke, investors had a feeling that cigarette producers will have a problem, the stock valuation was low. Well, something different happened to the company. The fundamentals remained strong. These stocks had good returns and still have. 

    How is this possible?

    The stocks had higher dividend yields and investors reinvesting their dividends. Very good play. Tobacco companies also reinvested. They were buying back their cheap stocks and increased their earnings-per-share and dividend-per-share. 

    Smart investors know that value stocks can outperform most other factors. Some of the cheapest stocks in the market today are banks, oil companies, and so on. Keep it in mind.

    So is value investing coming back? Do we really need to think better what the definition of value is?

  • LCI Industries Stock Stands Out In The Market

    LCI Industries Stock Stands Out In The Market

    LCI Industries Stock Stands Out In The Market
    LCI Industries (LCII) supplies a large number of highly engineered components for the leading original equipment manufacturers.
    Recently, LCI announced the Q3 earnings report and the stock looks like a good option for value investors.

    By Gorica Gligorijevic

    LCI Industries (LCII), announced a few days ago that the Board of Directors authorized a quarterly dividend of $0.65/share of common stock on December 20, 2019. The dividend is payable to the stockholders that record at the close of business on December 6, 2019. Almost at the same time the company LCI Industries appointed Johnny Sirpilla to Board of Directors. Johnny Sirpilla is the founder of Encourage LLC. It is a small equity firm investing in population health management, employee health, medical device development, cancer prevention testing, fashion, interior design, senior living communities, residential and commercial development projects, etc.

    This stock could easily provide a 204% profit in just over 5 years. Insider information claims that there is a strong buying activity of this stock. 

    It is currently traded at $104.71.

     

    On November 5 the company issued a Q3 earnings report and had an earnings call presentation. 

    LCI Industries revenue

    The company reported third-quarter revenues of $586 million which is down 3% from the same quarter last year. Its wholesale shipments declined double-digits. Also, LCI reported a content increase in towable RVs, innovations that provide them to perform better than the other similar companies in the market.

    LCI’s international markets now exceed 41% of the total net sales. The operating margins are improved, according to the report.

    Despite the increase in the content of towable RV increasing 2.2%, there was a drop in content for the motorhome. That decreased 2.9% over the past 12 months due to a shift to smaller motorhomes this year. The bright side of this report is the increase in sales RVs among younger buyers. 

    LCI Industries reported $1.42 EPS for the quarter, beating the consensus estimate of $1.40 by $0.02. As we said, the company had revenue of $586.20 million for the quarter. The consensus estimation was of $578.87 million. LCI Industries has made $5.86 earnings per share over the last year. The current price-to-earnings ratio is 17.9. LCI Industries’ next earnings publication date is Thursday, February 6th, 2020 based on last year’s report dates.

    Investors interested in stocks from this industry estimate the LCI value opportunity in the future.

    Why LCII stock has a buy signal?

    LCII’s earnings have an improving outlook. Value investors examine figures to determine whether a company is undervalued.

    LCII forward P/E ratio is 18.88 and a PEG ratio of 1.18, which is a very important figure for a company’s expected earnings growth rate.

    The P/B ratio is 3.41. For value investors, the P/B ratio is important to compare a stock’s market value to its book value. 

    LCII stands above others due to its stable earnings outlook. 

    So Traders-Paradise opinion is that LCII is an excellent value option with more possibilities in the future.

    LCI Industries has increased its EPS by an average of 2.2% per year, during the last 3 years. In the last year, but its revenue is down by 5.7%. To be honest, it is always better to see revenue growth, but never forget how EPS growth is important. For LCI Industries, these two metrics are running in diverse directions, so despite the fact that it is difficult to be sure of future performance, we think this stock deserves to be watched. Moreover, this stock looks undervalued in comparison to its fair value. LCII  is trading at $104.71 which is below some experts estimations of the stock’s fair value at $150.64.

    About LCI Industries

    LCI Industries manufactures recreational vehicles, popular RVs, and accessories. The company sells toolboxes, truck caps, running boards, side-outs, mattresses, alignment systems, shock absorber, power stabilizer jacks, baggage doors, and sliders. LCI Industries sells its products globally.

    Customers are extremely satisfied with this company claiming the workers and support service at this company are great. Investors could be satisfied since the estimations show that the company has offices in Elkhart, Bradenton, Chesaning, Denver, and in 32 other locations. LCI has over 10.000 employees across 55 locations. The company’s headquarters is in White Plains, New York, United States.

     

  • Designer Brands A Value Stock To Watch

    Designer Brands A Value Stock To Watch

    Designer Brands A Value Stock To Watch
    Designer Brands Inc. is a US-based company, belongs to the Services sector and Apparel Stores industry. It has a market capitalization of $1.28B. 

    By Guy Avtalyon

    Designer Brands became the new name for DSW Inc.from May this year. At that time they announced they will add more other designers’ shoes and accessories. The company began trading under a new ticker, DBI, on the New York Stock Exchange on April 2.

    Let’s take a look at its potential as an investment. Actually, we’ll analyze its Return On Capital Employed (ROCE), because that will give us a sense of the quality of the business.

    ROCE will show the ‘return’ a company generates from its capital. When you see a company with higher ROCE it is a sign that you are dealing with a business with better quality.

    Here is the formula:

    Return on Capital Employed = Earnings Before Interest and Tax (EBIT) á (Total Assets – Current Liabilities)

    For Designer Brands based on data for the first eight months this year, it is calculated

    0.084 = $160m á ($2.6b – US$649m) or 8,4%

    Is it good or bad for Designers Brands?

    ROCE is helpful to see relations between related companies in the same industry. If we compare its ROCE, for example, with returns on bonds, we can see that this result wasn’t excellent. Designer Brands’s ROCE was average. And investors may find better opportunities in some other investment, right?

    ROCE of 8,4% is almost double less than what the company had 3 years ago when it was 15%. What does it mean? Well, several reasons can be in the play but it is obvious that the company has some problems.

    When you employ ROCE as a metric one thing you have to keep in your mind. It is a helpful tool, but it is not without disadvantages. You have to be cautious when examining the ROCE of different companies because there is no two or more companies that are precisely similar.

    ROCE isn’t necessarily a good metric due to the nature of the business. This kind of business usually has several sales peeks over the year but also the lower sales-rate periods. After the announcement of changing the name, Designer Brands’ revenue is constantly increasing.

    But what we can see is the Designer Brands has total liabilities of $649m and total assets of US$2.6b. So, its liabilities are approximately 25% of its assets which is a reasonable level and has a modest effect on ROCE.

    Designer Brands (DBI) is possible a good long-term investment. 

    The current price might go up to $20 in the next three months with a possible profit of up to 70% in 2 years.

    This stock has a strong buy signal since the short-term moving average is above the long-term moving average. It looks that further gains are very possible. But this stock is a risky one. It can move 3.40% between the high and low prices over one day as the historical data shows but last week’s average daily volatility was 3,37% which is medium. 

    If you are trading this stock maybe you should consider setting the stop-loss limit at -5,60%. It looks that this stock is currently well priced, it isn’t oversold and not overbought but the stock may be undervalued. That gives the space to raise more.

    Designer Brands (DBI) is a stock many investors are following right now. The stock forward P/E ratio is 7.76. Its industry’s average forward P/E is 10.72. Over the past 12 months, the highest forward P/E ratio was15.30 and the lowest was 6.84, which lead us to a median of 11.14.

    The price has been changed in four past weeks for 5.13% and for the last three months 18.80%. Considering the possibilities of its earnings, DBI stands out as one of the market’s hottest value stocks right now.

    What is Designer Brands?

    Designer Brands is one of the largest designers, producers, and retailers of footwear and accessories in the USA.

    Under the name, DSW (Designer Shoe Warehouse) the first store opened in 1991 in Dublin, Ohio. Today, DSW holds more than 500 stores in 44 states. Also, there is the Affiliated Business Group with almost 290 leased units for retailers, such as Stein Mart.

    The company also operates in Canada, in collaboration with The Shoe Company and Shoe Warehouse trough 150 locations. 

    In 2018, Designer Brands acquired Camuto Group, best known for the Vince CamutoÂŽ brand and the Jessica SimpsonÂŽ and Lucky BrandÂŽ. This partnership provides Designer Brands to be one of the largest footwear companies in North America. It opened global capabilities in product design, development, and production. The company seems to be moving to a long-term strategy for growth and relevance with customers.

    Since 2005, the company is traded on the NYSE under the ticker symbol DBI.

     

  • Benjamin Graham – The greatest investor in the history

    Benjamin Graham – The greatest investor in the history

    4 min read

    Benjamin Graham - The greatest investor in the history

    Benjamin Graham is widely recognized as the father of value investing.

    He was born as Benjamin Grossbaum on May 9, 1894, in London as the oldest son into a Jewish family.

    When Graham was one year old, his parents, Isaac M. and Dorothy Grossbaum, migrated to the US. They lived in New York, where Isaac began an export-import trade.

    His childhood was really traumatic.

    He was just a nine-year-old boy when his father Isaac died. Graham’s mother Dorothy stayed alone to take care of Benjamin and his two younger brothers, Leon and Victor.

    Fathers death was one just a first in serial of unfortunate events.

    His mother Dorothy stayed to manage the family business but the Bank Panic stole her savings 1907, four years after her husband died.

    The family was dumped to poverty. Almost over the night, they lost everything.

    And finally, the family was forced to move in with her brother.

    But Benjamin Graham didn’t give up. He worked harder on himself.

    He became a really good student. Graham was an excellent student at school. He entered Columbia University on a scholarship.

    He graduated in 1914 as salutatorian of his class at Columbia.

    Salutatorian is an academic title. This honor is known in the United States and the Philippines. This means that Benjamin Graham was the second-highest-ranked graduate of the entire graduating class.

    Frankly, this is the point where the whole story began. Graham was in his 20s when he took a brave and unusual action. But

    this step led him to the fortune.
    Few weeks before his graduation, he got an offer from Columbia University to teach math, English, and Greek and Latin philosophy.

    He refused it. Despite the opportunity to finally have financial security.

    What he did instead?

    Graham joined The Wall Street.

    Early steps

    At first, he was a messenger at the Newburger, Henderson, and Loeb. That was a brokerage company at The Wall Street.
    It was almost a revolution.

    At that time university graduates did not see stockbroking as a professional choice.

    His first job was to write scores on the blackboard.

    But he was an intelligent, smart and with good educational background. The field of his responsibilities rose very soon. The brokerage’s owners gave him to work on financial analyses for the firm.

    After 6 years of working for this brokerage, he became a partner of Newburger, Henderson, and Loeb. It happened in 1920.

    At that time he changed his name, to better suit the Wall Street background.

    And soon, he was earning $50,000 per year. Not bad for 25 years old young man.

    That was not the end of his ambitions. His marvelous mind couldn’t be satisfied with such a position. Six years later, he founded with his colleague Jerome Newman, a ”Graham Newman Co.”

    And they both showed extraordinarily capabilities.

    The first winning

    They implemented some advanced strategies. Their goal was not only to secure their clients’ investments. They provided them a 670% return in a ten years time frame.

    How they did it?

    Well, it was kind of controversy betting.

    It was like this.

    They would bet that some stock price would be going up but at the same time, they were putting the bet that the price of some other stock would be going to fall. It was a simultaneous betting.

    At this way, they could entirely use accessible resources, and not to hold cash positions.

    They were beating leading mutual funds by 40%.

    And it was beginning of one marvelous career.

    Benjamin Graham - The greatest investor in the history 2

    Graham made an extraordinary discovery in 1926.

    That one provided him a leading position in the market. It was so called Northern Pipeline Affair.

    It was all about the Rockefellers and their business. Their Standard Oil was separated into 34 autonomous companies in 1911.

    Wall Street didn’t know anything about their finances. Well, actually, they knew nothing about them.

    Until the Interstate Commerce Commission demanded all pipeline companies to file financial reports.

    Going through these statements, Graham paid attention to one Northern Pipeline Company. In order to have a better view, he traveled to Washington.

    What a surprising revelation was waiting for him.

    The Northern Pipeline was trading at $65 per share. Also, the company owned railroad bonds at $95.

    Graham revealed that the company could issue its assets without the mediators.

    Benjamin Graham - The greatest investor in the history 1Benjamin Graham: The father of value investing

    And he began to purchase the company’s stock, getting 5% of it in 1926.

    And here was the twist.

    Graham demanded owners to issue the access asset to all shareholders stated they were legal owners. He was refused, of course.

    One year later, at the time of the shareholders’ meeting, Graham announced his proposal to his shareholders. He was refused again.

    Benjamin Graham decided to hire a law firm, and tried to find proxies.

    The negotiations with Rockefeller’s Foundation ended without result.

    And spectacularly turnover!

    The greatest winning

    At the beginning of 1928, Graham had got proxies for approximately 37.50% of the company’s shares.

    The new meeting with shareholders held in that year was a turning spot in his career.

    Northern Pipeline had to accept Graham’s election to its board. Moreover, they issued $70 per-share of excess liquid assets to its shareholders.

    Rockefeller invited Graham for a meeting. After that meeting, Rockefeller urged other branches to share excess liquid cash among its legal owners.

    It was a great Graham’s victory!

    The ”Northern Pipeline Affair,” set Benjamin Graham as an excellent analyst and a shareholder protector.

    In 1929, during the Great Depression, Graham Newman Partnership despite the great lost continued to work. They managed to recover their assets, and never lose again.

    Their average annual return was of 17% until 1956.

    But the Great Depression was the great inspiration to Graham too.

    Benjamin Graham’s legacy

    He published his first book, ‘Security Analysis’ in 1934, the first book that dealt with the art of investments.

    Five years after, Graham published his fundamental work, “The Intelligent Investor”. All that time, he had a significant position in the stock market.

    His market play was: buy shares and trade them lesser than the companies liquidation value, which provided him minimum risks.

    Benjamin Graham’s play in the stock market excited many young investors. One of them was Warren Edward Buffett. Also, William J. Ruane, Seth Klarman, Bill Ackman, and Charles H. Brandes also considered themselves to be Graham’s followers.
    They all employed his value investing techniques. And they expanded them to all markets all over the world.

    Benjamin Graham’s masterpieces are “Security Analysis” and “The Intelligent Investor”.

    In “Security Analysis”, he explicitly differentiated between investment and speculation. The subject of his  ‘The Intelligent Investor’, is value investing.

    We are sure you heard about “Benjamin Graham formula”.

    It is published in “The Intelligent Investor”.

    This formula can help the investors to instantly discover if their stocks were priced reasonably.

    Benjamin Graham married thrice.

    His private life is not known well. Graham had at least three sons.

    On September 21, 1976, Graham died in Aix-en-Provence, France, at the age of 82.

    The bottom line

    It really looks so easy to be a great investor. Actually, it isn’t. But it is so easy to be an investor. Even with a little money. 
    And there are no limitations to try it.

    Investing is so simple these days. You can get all the help you need. Also, you may implement some of the algo techniques. Or you can use robo advisors.

    All of them are present in the market to help you to gain your profit. So, why to wait?
    Go! Try your hand!

    Who knows, maybe you, yes, you, you can be the next Benjamin Graham.

    We are sure you are next.

    Don’t waste your money!
    risk disclosure

  • Bargain Hunting – The Holy Grail of Investing

    Bargain Hunting – The Holy Grail of Investing

    Bargain Hunting - The Holy Grail of InvestingIf you understand the terms overvalued and undervalued you will find plenty of stocks that look cheap

    By Guy Avtalyon

    Stock investors are bargain hunting! From time to time, that is a title for a lot of news reports when it is a general market decline. For example, after the 2007/2008 prices have been cut by 40-60% so for sure there were some bargains out there.

    People’s intuition about what is worth to buy can have dangerous side effects when it comes to investing. However, winning instincts can be very profitable. This is what the concept of value investing is all about.

    People spend their money to buy expensive things in order to indicate status. But the other way is to get a good bargain. If you can combine both, it would be ideal. Having the status-symbol normally cost a lot, so we would like to get them at a good bargain. That sounds like a good deal.

    The dogma that expensive things are better, forms human behavior in some unusual ways.

    What is Bargain Hunting

    For example in drug testing, patients mostly find they feel better if they know that the medicine that they use is more expensive. Incredible! That means that people instinctively look for bargains. They use price itself as information to estimate if something is a good bargain. That is indirect logic.

    The defining value investing, hence, comes down to the simple concept of buying quality stocks that are undervalued. Not always the cheap is bad, and if something is expensive, then it isn’t always good. Bargain hunting means that a stock is worth less than it should be and is therefore undervalued. The ability to pick undervalued stocks or so-called value-investing is quite a talent. But is there really such a thing as an undervalued stock?

    The stock price is a mixture of investors’ estimates for later growth. So, the opinion as to whether that stock is undervalued can be very questionable.

    How the bargain hunting works

    In less than 10 minutes reading about stocks you will come across the terms overvalued and undervalued. If you do a bit more examination, you will find plenty of stocks that look cheap to one financial theorist, but expensive to others.

    How exactly can you calculate the value of a stock?

    Well, it depends. There are a number of different metrics that may answer that question under different conditions. Here are some simple methods.

    Use Price-earnings ratio (P/E)

    The price-earnings ratio is one of the simplest valuation metrics. Just divide the price per share by earnings per share.

    That’s the P/E. The lower the P/E, the less value it has.

    Many investors like to use trailing 12-month earnings because they’re tangible results. But many like using calculations for the next period. Well, investors care most about the future, not what a stock’s already done.

    EXAMPLE
    Stock price = $30/share
    Previous year’s earnings = $2/share
    P/E = 15

    Use price/earnings-growth ratio (PEG)

    The utilities, for example, trade at low P/E, indicating low expectations for future growth. HiTech companies frequently trade at high P/E because investors are counting on fantastic growth. Price/earnings growth (PEG) is transforming growth expectations into the valuation. To calculate this you have to divide P/E by annual earnings per share growth. With PEG, less than 1 is rated undervalued, and anything over 1 is rated overpriced.

    EXAMPLE
    Stock P/E = 15
    Estimated 5-year annual earnings growth: 15%
    PEG = 1

    Use price-sales ratio (P/S)

    When some company hasn’t earned, it has revenues, after all.

    A low P/S is cheap and a high P/S is expensive. For example, Twitter was flagged for having a high P/S early after its initial public offering. It was more than double of Facebook. But, that corrected thanks to disappointing results. Twitter’s P/S dropped from nearly 30 in December 2013 to about 5 as shares plunged more than 70 percent.

    EXAMPLE
    Stock price = $30/share
    Previous year’s revenues = $5/share
    P/S = 5

    Use price-dividend (P/D)

    Price-dividend is a less used metric, but it is quite good for measuring dividend stocks. To calculate, you have to divide the price by dividend. This ratio will tell you how much you have to pay to receive $1 in dividend payments. This is most useful in comparing a stock’s value against itself or against other dividend payers.

    EXAMPLE
    Stock X price = $30/share
    Previous year’s dividend = $1/share
    P/D = 30

    Enterprise value-sales is an alternative to price-sales, just like Enterprise value-EBITDA is an alternative to P/E. But you can use them, of course.

    The most important, all this is in the future, so you have no control over it.

    The only thing you can control is the price at which you can buy the stock. Moreover, whether you buy it at all at a settled price. Everything that happens in the future is in the shadow of the price. The same investment can be good or bad depending on what price you paid.

    How to find bargain hunting?

    Let’s say, it is impossible to estimate an investment without the context of its price. There are equity investments which are bad despite the price. Still, there aren’t any investments that are good despite the price. If there is no bargain to be had, the instinct of buying only at a bargain is the most important thing in investing.

  • Value Investing Is Profitable Investing Strategy

    Value Investing Is Profitable Investing Strategy

    What Is Value Investing
    Value investing is profitable and could generate huge returns if done well.

    By Guy Avtalyon

    Value investing is an investment strategy where stocks selected that trade for less than their intrinsic values. But that explanation packs a lot of nuance in a few words.

    Value investors usually seek stocks they believe the market has undervalued. Investors believe the market overreacts to good and bad news. And that stock price movements do not match with a company’s long-term fundamentals. That gives to investors an opportunity to profit when the price is deflated. 

    With these types of investments, you don’t make fast money, but if the investment is right it will eventually blow up and early investors may get their reward.

    When this style arose?

    In the early 1930s, Ben Graham at Columbia University developed this style of investing. He is the author of “The Intelligent Investor” from 1947.
    Graham thought it is difficult for the average investor to beat the market. So he developed the concept of intrinsic value.
    But he never fully defined it. Later, he admitted that the value was ultimately determined by the investor’s beliefs.

    What is value investing?

    This strategy involves the three-step process. But most people believe the process has only the first step.
    So, let’s see.

    The very First step. – Screen stocks based on price-to-earnings (P/E), price-to-book (P/B), or other valuation-related metrics. In order to identify possibly undervalued stocks.
    The second step. – You have to evaluate the low P/E or P/B stocks to determine their intrinsic value.
    And the third step. –  Make an investment decision. Buy only if the stock price is below the intrinsic value by a predetermined margin of safety (normally around 30%).

    Value investors are very careful of valuation risk.

    They are bottom-up stock pickers, with a long-term perspective. Value investing is all about concentrating a portfolio on a few, selected, undervalued stocks. Diversification does not matter much. The margin of safety helps identify a stock as truly undervalued. But also, protects the downside and controls for risk.

    What is important for value investing?

    Before deciding if this investing strategy suitable for you not, you have to find the answers to several questions. They are very important when estimating is some stock suitable as value investing.

    What does the underlying business do?
    What type of return are you looking for?
    Does it have competitive advantages and which?
    How much money can it generate over the next several years?
    Which the underlying business is actually worth?
    What’s the current price of the business relative to your aspired return on investment?
    How likely are you to be wrong evaluating the business?

    That seems like a lot of questions. But they’re fundamentally liable like the other investment strategies are not. It isn’t necessary to predict what other investors are doing or thinking in the short term.

    For value investors, it is important to realize the stock is currently underpriced. Some people believe the stock market is financial mumbo-jumbo, where success is a kind of lottery. People very often ask this one single question: “Isn’t the average investor set to fail?”

    I believe the contrary, I believe that you can succeed.

    Value investing has to find great and successful businesses, the ones that bring a chance to purchasers. So they can make fair profits. They earn solid incomes. These are companies anyone would want to own because they produce real money for their owners. When some investor buys shares of these companies, she or he owns a small part of their business. Value investors buy shares in companies that have demonstrated that they can and will continue to succeed.

    What is the value investing strategies?

    The most popular value-investing method is the discounted cash flow analysis.
    That’s how investors try to determine a company’s financial future. The next step is to discount the future cash flows based on a preferred discount rate. The rate is determined by the weighted average cost of capital or short WACC. Also, the weighted average between the cost of equity and the cost of debt is one of the measures.

    There are comparable versions of this analysis that tries to determine intrinsic value from other cash flow. It is the dividend discount model. Its focus is on dividend payouts as one of the reliable cash flows, free cash flow isn’t so important to these analysts.

    The point of all these methods is to find the net current value of a stock. In other words, they want to find what the company is worth when all future cash flows are discounted at a determined rate.

    Also, there are other methods for finding undervalued stocks, for example, so-called asset play. Investors try to find out companies that have valuable assets, for example, land or intellectual property that isn’t accurately visible on its balance sheet or in its market price. Sometimes assets like patents are considered very valuable.

    These value investing strategies have clearly been successful for famous investors. But there are drawbacks to value investing.

    Probably the biggest one is that it creates a blind spot for fast-growing startups. That may not yet be profitable but sometimes it turns into blockbuster investments.

    Is this strategy right for you?

    Value investing can be very profitable and could generate huge returns if done adequately.

    Your decision to invest for value may depend most on your investing goals and your time horizon.
    Value investing is an intelligent choice for some middle-age investor that looking for wealth safety and low-risk returns
    Always keep in your mind, dividends-paying investment, and, at the same time, profitable and high in value will provide you better profits. So, it’s almost impossible to experience great losses.
    By finding undervalued stocks with the potential to grow you’ll have better chances to outperform the market.
    Value investing is a smart component to include in any diversified portfolio as a mix of value and growth stocks. It can help investors get access to big winners.
    Anyway, diversification is one of the best ways to reduce the overall portfolio risk but without losing out on returns.
    Also, there is the compound interest. With its power, value stocks will generate income over the long term. Add dividend payments since many of these companies offer regular dividends.
    But if you’re a younger investor, growth stocks could be a better pick for your investment portfolio.
    But for any investor, choosing undervalued stocks is a proven way to beat the market.