Sunday, November 8, 2015

"This past week I had an epiphany to the virtues of "Value Investing" and how successful it can be. So I am combining my "Growth At a Reasonable Price" tenets with some traditional "Value Investing" tenets and want to see what results"

Dow Jones Industrial Average 17,910.33 Week ending 11-06-2015

Last weekend my wife and I attended a memorial gathering for a friend who was a gifted architectural historian. It was held at an estate of a gracious couple who were also friends of his. An intimate gathering to celebrate his life. Until we were introduced to our host, I had been unaware he is one of the great "Value" investors of our time.

Discussing stocks would have been inappropriate for this occasion, (although he did mention Warren Buffett a few times). Hopefully when we have the opportunity to meet again and he and I can discuss value investing as this is a topic I wish to pursue further.

Firstly let me say that I have limited expertise on this "Value Investing" subject, Anyone reading this blog that wants to "Value invest" should simply buy the stock of the world's leading experts, Warren Buffett and Charlie Munger, and may purchase shares of Berkshire Hathaway  Inc "B" stock (Symbol BRK.B , $136.33). This stock currently has a 1.38 price to book value. 

Anything written beyond this point is just a grand experiment!

So here is the spicy soup mix of screening that I came up with. I took PEG Ratio of less than 1.5, and ROE of 15% or higher, (My GARP tenets), and combined them with Value tenets of Price to Book value of 1.5 or less and Price to Cash Flow of 3 or under. Maybe a DaVinci Code for modern investing, ha,ha!  Here is what came up in the screening.

Iconix Group Inc. (Symbol ICON, $6.90)  a stock that got obliterated last week has a Book Value of 20.02. Even I can recognize this as a good value deal. PEG 0.18, ROE 14.40%, Price to Book 0.34 and Price to Cash Flow 1.91. 

A.H. Belo Corp.(Symbol AHC, $5.52) has a book value of $5.60 a share and is in the newspaper business. Who would want to own that? (Warren Buffett actually owns some newspaper companies, Washington Post). This company has an ROE of 65.5%, Price to Book 0.99, Price to Cash flow 1.42, and pays a 5.8% dividend. 

AU Optronics Corp. (Symbol AUO, $2.95) is a semiconductor company. It has a PE of 4.28, a PEG of 0.09, a ROE of 12.40, a Book value per share of $5.97, a Price to Book value of 0.49, and Price to Cash flow of 1.95.

The next one, and a few of these aren't perfect, is Concord Medical Holdings Limited, (Symbol CCM, $5.09) PEG Ratio 0.43, PE 8.63, ROE 10.50%, Book Value $6.54, Price to cash flow 11.86 (higher then my screen), Price to book 0.78. 

One stock that popped up based on Book Value but failed to pass a Warren Buffett tenet because of it being "Regulated by Government" is American International Group, (Symbol AIG, $61.93). Carl Icann is trying to remedy that situation by trying to get them to break up the company. Then they would no longer be in the "Too Big to Fail" category and under government scrutiny. Call these the "Honorable Mention" stocks.

AIG has a Book Value of near $80.00 per share with a Price to Book Value of 0.79. The current PEG Ratio is 1.16 and the forward PE is 11.32. It pays a dividend of 1.81% while you wait. The ROE is not great at 6.70 and the Price to Cash flow is off the charts at 25.25. But still may be a stock to look at.  General Motors (Symbol GM, $35.75) is another stock that might fall into this "interesting" category based on some, but not all of these Value screening criteria.

Another one in the honorable mention category in Mannatech Incorporated (Symbol MTEX, $25.10), which has had quite a run since September. PEG Ratio is 0.35 and PE is 6.06. Return on Equity is 34.60% and Price to book is 1.87. Price to Cash flow off the charts again at 13.73.  The recent run up in stock price may mean I am a little late to the game on this one. Still it makes the "Honorable Mention" category.

I may take a flyer out on ICONIX Brands, (symbol ICON), this week to test out my experiment. George Soros would tell me to double down on it if I am sure of myself. Let's see how the stock opens on Monday.

Have a great autumn weekend and enjoy your family and friends,


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