Guru Analysis
| Strategy: Contrarian Investor
Based on: David Dreman |
| Banco Macro SA is an Argnetina-based financial institution (the Bank) that offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals. In addition, the Bank performs certain transactions through its subsidiaries, including mainly Banco del Tucuman, Macro Bank Ltd, Macro Securities SA, Macro Fiducia SA and Macro Fondos SGFCI SA. It has approximately two categories of customers, such as retail customers, including individuals and entrepreneurs and corporate customers, which include small, medium and large companies and major corporations. In addition, it provides services to over four provincial governments. It provides its corporate customers with traditional banking products and services, such as deposits, lending (including overdraft facilities), check cashing advances and factoring, guaranteed loans and credit lines for financing foreign trade and cash management services. |
MARKET CAP: PASS
Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. BMA has a market cap of $4,753 million, therefore passing the test.
EARNINGS TREND: PASS
A company should show a rising trend in the reported earnings for the most recent quarters. BMA's EPS for the past 2 quarters, (from earliest to most recent quarter) 0.18, 1.79 have been increasing, and therefore the company passes this test.
EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: PASS
This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. BMA passes this test as its EPS growth rate over the past 6 months (795.00%) has beaten that of the S&P (13.51%). BMA's estimated EPS growth for the current year is (1,320.37%), which indicates the company is expected to experience positive earnings growth. As a result, BMA passes this test.
This methodology would utilize four separate criteria to determine if BMA is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest".
P/E RATIO: PASS
The P/E of a company should be in the bottom 20% of the overall market. BMA's P/E of 11.08, based on trailing 12 month earnings, meets the bottom 20% criterion (below 13.44), and therefore passes this test.
PRICE/CASH FLOW (P/CF) RATIO: FAIL
The P/CF of a company should be in the bottom 20% of the overall market. BMA's P/CF of 10.32 does not meet the bottom 20% criterion (below 7.66), and therefore fails this test.
PRICE/BOOK (P/B) VALUE: FAIL
The P/B value of a company should be in the bottom 20% of the overall market. BMA's P/B is currently 3.70, which does not meet the bottom 20% criterion (below 1.07), and it therefore fails this test.
PRICE/DIVIDEND (P/D) RATIO: FAIL
The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). BMA's P/D of 111.11 does not meet the bottom 20% criterion (below 20.53), and it therefore fails this test.
This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below.
PAYOUT RATIO: FAIL
A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for BMA is 9.44%, while its historical payout ratio has been 9.30%. Therefore, it fails the payout criterion.
RETURN ON EQUITY: PASS
The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 large cap stocks, which is 16.17%, and would consider anything over 27% to be staggering. The ROE for BMA of 39.70% is high enough to pass this criterion.
PRE-TAX PROFIT MARGINS: PASS
This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. BMA's pre-tax profit margin is 43.92%, thus passing this criterion.
YIELD: FAIL
The company in question should have a yield that is high and that can be maintained or increased. BMA's current yield is 0.90%, while the market yield is 2.63%. BMA fails this test. |
| Strategy: Growth Investor
Based on: Martin Zweig |
| Thor Industries, Inc. manufactures a range of recreational vehicles (RVs) in the United States and sells those vehicles primarily in the United States and Canada. The Company's segments include towable recreational vehicles, which consists of the operations of Airstream, Inc. (Airstream) (towable); Heartland Recreational Vehicles, LLC (Heartland) (including Bison Coach, LLC (Bison), Cruiser RV, LLC (CRV) and DRV, LLC (DRV)); Jayco, Corp. (Jayco) (including Jayco towable, Starcraft and Highland Ridge), Keystone RV Company (Keystone) (including CrossRoads and Dutchmen) and K.Z., Inc. (KZ) (including Livin' Lite RV, Inc. (Livin' Lite)); motorized recreational vehicles, which consists of the operations of Airstream (motorized), Jayco (including Jayco motorized and Entegra Coach) and Thor Motor Coach, Inc. (Thor Motor Coach), and Other, which includes the operations of its subsidiary, Postle Operating, LLC (Postle). |
P/E RATIO: PASS
The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. THO's P/E is 20.36, based on trailing 12 month earnings, while the current market PE is 18.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: FAIL
Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. THO's revenue growth is 13.75%, while it's earnings growth rate is 22.61%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, THO fails this criterion.
SALES GROWTH RATE: PASS
Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (65.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (22.2%) of the current year. Sales growth for the prior must be greater than the latter. For THO this criterion has been met.
The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.
CURRENT QUARTER EARNINGS: PASS
The first of these criteria is that the current EPS be positive. THO's EPS ($1.49) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. THO's EPS for this quarter last year ($0.97) pass this test.
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: PASS
The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. THO's growth rate of 53.61% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS
Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for THO is 11.31%. This should be less than the growth rates for the 3 previous quarters, which are 50.88%, 26.89%, and 19.85%. THO passes this test, which means that it has good, reasonably steady earnings.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS
If the growth rate of the prior three quarter's earnings, 28.34%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 53.61%, (versus the same quarter one year ago) then the stock passes.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: PASS
The EPS growth rate for the current quarter, 53.61% must be greater than or equal to the historical growth which is 22.61%. THO would therefore pass this test.
EARNINGS PERSISTENCE: PASS
Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. THO, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.07, 2.86, 3.29, 3.79 and 4.91, passes this test.
LONG-TERM EPS GROWTH: PASS
One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. THO's long-term growth rate of 22.61%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
TOTAL DEBT/EQUITY RATIO: FAIL
A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. THO's Debt/Equity (25.65%) is considered high relative to its industry (22.22%) and fails this test.
INSIDER TRANSACTIONS: PASS
A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For THO, this criterion has not been met (insider sell transactions are 188, while insiders buying number 22). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion. |
GRUPO FINANCIERO GALICIA S.A. (ADR) |
| Strategy: Growth Investor
Based on: Martin Zweig |
| Grupo Financiero Galicia S.A. (Grupo Financiero Galicia) is a financial services holding company. The Company's segments include Banking, Regional Credit Cards, CFA, Insurance and Other Grupo Galicia Businesses. Banco de Galicia y Buenos Aires S.A. (Banco Galicia) is a subsidiary of the Company. Its banking business segment represents Banco Galicia consolidated line by line with Banco Galicia Uruguay S.A. (Galicia Uruguay). It operates the regional credit cards segment through Tarjetas Regionales S.A. and its subsidiaries. Its CFA business segment extends unsecured personal loans to low and middle-income segments of the Argentine population. The Company operates the insurance segment through Sudamericana Holding S.A. and its subsidiaries. Its Other Grupo Galicia Businesses segment includes the results of Galicia Warrants S.A., Galicia Administradora de Fondos S.A. Sociedad Gerente de Fondos Comunes de Inversion and Net Investment S.A. |
P/E RATIO: PASS
The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. GGAL's P/E is 13.09, based on trailing 12 month earnings, while the current market PE is 18.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: PASS
Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. GGAL's revenue growth is 35.68%, while it's earnings growth rate is 35.64%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, GGAL passes this criterion.
SALES GROWTH RATE: FAIL
Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (33.3%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (46.9%) of the current year. Sales growth for the prior must be greater than the latter. For GGAL this criterion has not been met and fails this test.
The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.
CURRENT QUARTER EARNINGS: PASS
The first of these criteria is that the current EPS be positive. GGAL's EPS ($0.75) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. GGAL's EPS for this quarter last year ($0.06) pass this test.
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: PASS
The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. GGAL's growth rate of 1,150.00% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: FAIL
Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for GGAL is 17.82%. This should be less than the growth rates for the 3 previous quarters which are 40.00%, 40.00% and 16.67%. GGAL does not pass this test, which means that it does not have good, reasonably steady earnings.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS
If the growth rate of the prior three quarter's earnings, 31.25%, (versus the same three quarters a year earlier) is less than the growth rate of the current quarter earnings, 1,150.00%, (versus the same quarter one year ago) then the stock passes.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: PASS
The EPS growth rate for the current quarter, 1,150.00% must be greater than or equal to the historical growth which is 35.64%. GGAL would therefore pass this test.
EARNINGS PERSISTENCE: PASS
Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. GGAL, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.04, 0.07, 0.09, 0.16 and 0.21, passes this test.
LONG-TERM EPS GROWTH: PASS
One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. GGAL's long-term growth rate of 35.64%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test. |
LEGACYTEXAS FINANCIAL GROUP INC |
| Strategy: Small-Cap Growth Investor
Based on: Motley Fool |
| LegacyTexas Financial Group, Inc. is a bank holding company. LegacyTexas Bank is its wholly owned principal operating subsidiary. The Company is engaged in attracting retail deposits from the general public and the business community and investing those funds, along with borrowed funds, in commercial real estate loans, secured and unsecured commercial and industrial loans, as well as permanent loans secured by first and second mortgages on one- to four-family residences and consumer loans. The Warehouse Purchase Program allows mortgage banking company customers to close one- to four-family real estate loans in their own name and manage its cash flow needs until the loans are sold to investors. The Company offers insurance and title services, as well as brokerage services for the purchase and sale of non-deposit investment and insurance products through a third-party brokerage arrangement. |
PROFIT MARGIN: PASS
This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. LTXB's profit margin of 29.27% passes this test.
RELATIVE STRENGTH: PASS
The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. LTXB, with a relative strength of 91, satisfies this test.
COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: FAIL
Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year. These growth rates give you the dynamic companies that you are looking for. These rates for LTXB (54.29% for EPS, and 21.44% for Sales) are not good enough to pass.
INSIDER HOLDINGS: FAIL
LTXB's insiders should own at least 10% (they own 2.48%) of the company's outstanding shares. This does not satisfy the minimum requirement, and companies that do not pass this criteria are less attractive.
CASH FLOW FROM OPERATIONS: FAIL
A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. LTXB's free cash flow figure is not available at this time which means an opinion cannot be rendered at this time.
PROFIT MARGIN CONSISTENCY: PASS
LTXB's profit margin has been consistent or even increasing over the past three years (Current year: 30.82%, Last year: 27.00%, Two years ago: 20.90%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise.
R&D AS A PERCENTAGE OF SALES: NEUTRAL
This criterion is not critically important for companies that are not high-tech or medical stocks because they are not as R&D dependant as companies within those sectors. Not much emphasis should be placed on this test in LTXB's case.
CASH AND CASH EQUIVALENTS: FAIL
LTXB does not have a sufficiently large amount of cash, $59.82 million, on hand relative to its size. Although this criteria does not apply to companies of this size, we defined anything greater than $500 million in cash as having 'a lot of cash' to allow analysis of these companies. LTXB will have more of a difficult time paying off debt (if it has any) or acquiring other companies than a company that passes this criterion.
"THE FOOL RATIO" (P/E TO GROWTH): FAIL
The "Fool Ratio" is an extremely important aspect of this analysis. The methodology says consider holding the shares when the company's Fool Ratio is greater than 0.65 (LTXB's is 0.76), but initial purchases in this range are unfavorable.
The following criteria for LTXB are less important which means you would place less emphasis on them when making your investment decision using this strategy:
AVERAGE SHARES OUTSTANDING: PASS
LTXB has not been significantly increasing the number of shares outstanding within recent years which is a good sign. LTXB currently has 47.0 million shares outstanding. This means the company is not taking any measures, with regards to the number of shares, that will dilute or devalue the stock.
SALES: PASS
Companies with sales less than $500 million should be chosen. It is among these small-cap stocks that investors can find "an uncut gem", ones that institutions won't be able to buy yet. LTXB's sales of $317.4 million based on trailing 12 month sales, are fine, making this company one such "prospective gem". LTXB passes the sales test.
DAILY DOLLAR VOLUME: PASS
LTXB passes the Daily Dollar Volume (DDV of $10.8 million) test. It is required that this number be less than $25 million because these are the stocks that remain relatively undiscovered by institutions. "You'll be scoring touchdowns against the big guys on your turf."
PRICE: PASS
This is a very insignificant criterion for this methodology. But basically, low prices are chosen because "small numbers multiply more rapidly than large ones" and the potential for big returns expands. LTXB with a price of $40.80 passes the price test, even though it doesn't fall in the preferred range. The price should be above $7 in order to eliminate penny stocks and below $20 since most stocks in this price range are undiscovered by the institutions.
INCOME TAX PERCENTAGE: PASS
LTXB's income tax paid expressed as a percentage of pretax income this year was (35.18%) and last year (34.87%) are greater than 20% which is an acceptable level. If the tax rate is below 20% this could mean that the earnings that were reported were unrealistically inflated due to the lower level of income tax paid. This is a concern. |
| Strategy: Price/Sales Investor
Based on: Kenneth Fisher |
| Corning Incorporated (Corning) is engaged in the manufacture of specialty glass and ceramics. The Company operates in five segments: Display Technologies, which manufactures glass substrates; Optical Communications, which is engaged in providing optical solutions; Environmental Technologies, which manufactures ceramic substrates and filter products; Specialty Materials, which manufactures products that provide over 150 material formulations for glass, glass ceramics and fluoride crystals, and Life Sciences segment, which is a developer, manufacturer and supplier of scientific laboratory products. The Display Technologies segment develops, manufactures and supplies glass substrates using a fusion manufacturing process. It manufactures and processes products at approximately 90 plants in approximately 20 countries. Corning offers its products under the trademarks, including Corning, Celcor, ClearCurve, DuraTrap, Eagle XG, Epic, Gorilla, HPFS, Pyrex, Steuben, Falcon, SMF-28e and Willow. |
PRICE/SALES RATIO: FAIL
The prospective company should have a low Price/Sales ratio. Non-cyclical companies with Price/Sales ratios greater than 1.5 and less than 3 should not be purchased. GLW's P/S ratio of 2.65 based on trailing 12 month sales, is above 1.5. If you are currently holding this stock, the P/S ratio is O.K., but if you are thinking about purchasing it, the stock would fail this methodology's first criterion.
TOTAL DEBT/EQUITY RATIO: PASS
Less debt equals less risk according to this methodology. GLW's Debt/Equity of 21.81% is acceptable, thus passing the test.
PRICE/RESEARCH RATIO: PASS
This methodology considers companies in the Technology and Medical sectors to be attractive if they have low Price/Research ratios. GLW is neither a Technology nor Medical company. Therefore the Price/Research ratio is not available and, hence, not much emphasis should be placed on this particular variable.
PRELIMINARY GRADE: No Interest in GLW At this Point
Is GLW a "Super Stock"? NO
Price/Sales Ratio: FAIL
The Price/Sales ratio is the most important variable according to this methodology. The prospective company should have a low Price/Sales ratio. GLW's Price/Sales ratio of 2.65 does not pass this criterion.
LONG-TERM EPS GROWTH RATE: PASS
This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. GLW's inflation adjusted EPS growth rate of 23.53% passes this test.
FREE CASH PER SHARE: PASS
This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. GLW's free cash per share of 0.65 passes this criterion.
THREE YEAR AVERAGE NET PROFIT MARGIN: PASS
This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. GLW's three year net profit margin, which averages 26.50%, passes this criterion. |
| Strategy: Growth Investor
Based on: Martin Zweig |
| Facebook, Inc. builds products that enable people to connect and share through mobile devices and personal computers. The Company enables people to share their opinions, ideas, photos and videos, and other activities. Its products include Facebook, Instagram, Messenger, WhatsApp and Oculus. Facebook is a mobile application and Website that enables people to connect, share, discover and communicate with each other on mobile devices and personal computers. Instagram is a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them to friends. Messenger is a messaging application available for mobile and Web on various platforms and devices. WhatsApp Messenger is a mobile messaging application that is used by people around the world. Oculus virtual reality technology and content platform allows people to play games, consume content and connect with others. |
P/E RATIO: PASS
The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. FB's P/E is 38.62, based on trailing 12 month earnings, while the current market PE is 18.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: PASS
Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. FB's revenue growth is 51.14%, while it's earnings growth rate is 134.84%, based on the average of the 3, 4 and 5 year historical eps growth rates. Sales growth is not at least 85% of EPS growth so the initial part of this criteria is not met, however, since both sales growth and eps growth are greater than 30%, that requirement is waived and the company passes this test.
SALES GROWTH RATE: FAIL
Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (50.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (55.8%) of the current year. Sales growth for the prior must be greater than the latter. For FB this criterion has not been met and fails this test.
The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.
CURRENT QUARTER EARNINGS: PASS
The first of these criteria is that the current EPS be positive. FB's EPS ($1.43) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. FB's EPS for this quarter last year ($0.54) pass this test.
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: PASS
The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. FB's growth rate of 164.81% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS
Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for FB is 67.42%. This should be less than the growth rates for the 3 previous quarters, which are 188.89%, 184.00%, and 164.52%. FB passes this test, which means that it has good, reasonably steady earnings.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: PASS
If the growth rate of the prior three quarter's earnings, 177.03%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 164.81%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for FB is 164.8%, and it would therefore pass this test.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: PASS
The EPS growth rate for the current quarter, 164.81% must be greater than or equal to the historical growth which is 134.84%. FB would therefore pass this test.
EARNINGS PERSISTENCE: PASS
Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. FB, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.02, 0.60, 1.10, 1.29 and 3.49, passes this test.
LONG-TERM EPS GROWTH: PASS
One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. FB's long-term growth rate of 134.84%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
TOTAL DEBT/EQUITY RATIO: PASS
A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. FB's Debt/Equity (0.00%) is not considered high relative to its industry (231.24%) and passes this test.
INSIDER TRANSACTIONS: PASS
A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For FB, this criterion has not been met (insider sell transactions are 1,087, while insiders buying number 48). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion. |
| Strategy: Growth Investor
Based on: Martin Zweig |
| ManpowerGroup Inc. is a provider of workforce solutions and services. The Company's segments include Americas, Southern Europe, Northern Europe, Asia Pacific Middle East (APME), Right Management and Corporate. The Company's Americas segment includes operations in the United States and Other Americas. Its Southern Europe segment includes operations in France, Italy and Other Southern Europe. Its Northern Europe segment includes operations in the United Kingdom, the Nordics, Germany and the Netherlands. Its APME operations provide a range of workforce solutions and services offered through Manpower, Experis and ManpowerGroup Solutions, including permanent, temporary and contract recruitment, assessment and selection, training and outsourcing. Its Right Management segment provides talent and career management workforce solutions. It provides services under its Experis brand, particularly in the areas of information technology (IT), engineering, finance and accounting, and healthcare. |
P/E RATIO: PASS
The P/E of a company must be greater than 5 to eliminate weak companies, but not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. MAN's P/E is 15.35, based on trailing 12 month earnings, while the current market PE is 18.00. Therefore, it passes the first test.
REVENUE GROWTH IN RELATION TO EPS GROWTH: FAIL
Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. MAN's revenue growth is -1.41%, while it's earnings growth rate is 20.56%, based on the average of the 3, 4 and 5 year historical eps growth rates. Therefore, MAN fails this criterion.
SALES GROWTH RATE: FAIL
Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (0%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (2.3%) of the current year. Sales growth for the prior must be greater than the latter. For MAN this criterion has not been met and fails this test.
The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.
CURRENT QUARTER EARNINGS: PASS
The first of these criteria is that the current EPS be positive. MAN's EPS ($1.86) pass this test.
QUARTERLY EARNINGS ONE YEAR AGO: PASS
The EPS for the quarter one year ago must be positive. MAN's EPS for this quarter last year ($1.66) pass this test.
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: PASS
The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. MAN's growth rate of 12.05% passes this test.
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: PASS
Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for MAN is 10.28%. This should be less than the growth rates for the 3 previous quarters, which are 19.51%, 20.30%, and 16.15%. MAN passes this test, which means that it has good, reasonably steady earnings.
This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: FAIL
If the growth rate of the prior three quarter's earnings, 18.35%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 12.05%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for MAN is 12.0%, and it would therefore fail this test.
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: FAIL
The EPS growth rate for the current quarter, 12.05% must be greater than or equal to the historical growth which is 20.56%. Since this is not the case MAN would therefore fail this test.
EARNINGS PERSISTENCE: PASS
Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five year period. MAN, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 2.47, 3.62, 5.30, 5.40 and 6.27, passes this test.
LONG-TERM EPS GROWTH: PASS
One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. MAN's long-term growth rate of 20.56%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.
TOTAL DEBT/EQUITY RATIO: PASS
A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. MAN's Debt/Equity (34.95%) is not considered high relative to its industry (121.05%) and passes this test.
INSIDER TRANSACTIONS: PASS
A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For MAN, this criterion has not been met (insider sell transactions are 932, while insiders buying number 498). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion. |
PRINCIPAL FINANCIAL GROUP INC |
| Strategy: Growth/Value Investor
Based on: James P. O'Shaughnessy |
| Principal Financial Group, Inc. is an investment management company. The Company offers a range of financial products and services, including retirement, asset management and insurance services. The Company's segments include Retirement and Income Solutions; Principal Global Investors, Principal International, and U.S. Insurance Solutions. It offers retirement and employee benefit solutions, and individual insurance solutions. It offers portfolio of products and services for retirement savings and retirement income. Its Principal Global Investors segment manages assets for investors around the world, using a multi-boutique strategy that provides diverse investment capabilities, including equity, fixed income, real estate and other alternative investments. It offers pension accumulation products and services, mutual funds, asset management, income annuities and life insurance accumulation products. The U.S. Insurance Solutions segment provides group and individual insurance solutions. |
MARKET CAP: PASS
The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million. This will screen out the companies that are too illiquid for most investors, but still include a small growth company. PFG, with a market cap of $17,428 million, passes this criterion.
EARNINGS PER SHARE PERSISTENCE: PASS
The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period. PFG, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were 2.58, 2.95, 3.72, 4.06 and 4.50, passes this test.
PRICE/SALES RATIO: PASS
The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. PFG's Price/Sales ratio of 1.40, based on trailing 12 month sales, passes this criterion.
RELATIVE STRENGTH: PASS
The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion. This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. PFG, whose relative strength is 78, is in the top 50 and would pass this last criterion. |
| Strategy: Contrarian Investor
Based on: David Dreman |
| NK LUKOIL PAO is an energy company. The primary activities of LUKOIL and its subsidiaries are oil exploration, production, refining, marketing and distribution. The Company's segments include Exploration and Production; Refining, Marketing and Distribution, and Corporate and other. The Exploration and Production segment includes its exploration, development and production operations relating to crude oil and gas. These activities are located within Russia, with additional activities in Azerbaijan, Kazakhstan, Uzbekistan, the Middle East, Northern and Western Africa, Norway, Romania and Mexico. In addition to its production, the Company purchases crude oil in Russia and on international markets. The Refining, Marketing and Distribution segment includes refining, petrochemical and transport operations, marketing and trading of crude oil, natural gas and refined products, generation, transportation and sales of electricity, heat and related services. |
MARKET CAP: PASS
Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. LUKOY has a market cap of $46,944 million, therefore passing the test.
EARNINGS TREND: PASS
A company should show a rising trend in the reported earnings for the most recent quarters. LUKOY's EPS for the past 2 quarters, (from earliest to most recent quarter) 1.29, 1.30 have been increasing, and therefore the company passes this test.
EPS GROWTH RATE IN THE IMMEDIATE PAST AND FUTURE: FAIL
This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. LUKOY fails this test as its EPS growth rate for the past 6 months (-12.16%) does not beat that of the S&P (13.51%).
This methodology would utilize four separate criteria to determine if LUKOY is a contrarian stock. In order to eliminate weak companies we have stipulated that the stock should pass at least two of the following four major criteria in order to receive "Some Interest".
P/E RATIO: PASS
The P/E of a company should be in the bottom 20% of the overall market. LUKOY's P/E of 7.24, based on trailing 12 month earnings, meets the bottom 20% criterion (below 13.44), and therefore passes this test.
PRICE/CASH FLOW (P/CF) RATIO: PASS
The P/CF of a company should be in the bottom 20% of the overall market. LUKOY's P/CF of 5.31 meets the bottom 20% criterion (below 7.66) and therefore passes this test.
PRICE/BOOK (P/B) VALUE: PASS
The P/B value of a company should be in the bottom 20% of the overall market. LUKOY's P/B is currently 0.71, which meets the bottom 20% criterion (below 1.07), and it therefore passes this test.
PRICE/DIVIDEND (P/D) RATIO: PASS
The P/D ratio for a company should be in the bottom 20% of the overall market (that is the yield should be in the top 20%). LUKOY's P/D of 18.80 meets the bottom 20% criterion (below 20.53), and it therefore passes this test.
This methodology maintains that investors should look for as many healthy financial ratios as possible to ascertain the financial strength of the company. These criteria are detailed below.
CURRENT RATIO: PASS
A prospective company must have a strong Current Ratio (greater than or equal to the average of it's industry [1.48] or greater than 2). This is one identifier of financially strong companies, according to this methodology. LUKOY's current ratio of 1.71 passes the test.
PAYOUT RATIO: PASS
A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for LUKOY is 0.00%. Unfortunately, its historical payout ratio is not available. Nonetheless it passes the payout criterion, as this is a very low payout.
RETURN ON EQUITY: FAIL
The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one third of ROE from among the top 1500 largest cap stocks, which is 16.17%, and would consider anything over 27% to be staggering. The ROE for LUKOY of 7.32% is not high enough to pass this criterion.
PRE-TAX PROFIT MARGINS: FAIL
This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. LUKOY's pre-tax profit margin is 7.69%, thus failing this criterion.
YIELD: PASS
The company in question should have a yield that is high and that can be maintained or increased. LUKOY's current yield is 5.32%, while the market yield is 2.63%. LUKOY passes this test.
LOOK AT THE TOTAL DEBT/EQUITY: PASS
The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry of 63.44%. LUKOY's Total Debt/Equity of 27.53% is considered acceptable. |
| Strategy: P/E/Growth Investor
Based on: Peter Lynch |
| Sanderson Farms, Inc. is a poultry processing company. The Company is engaged in the production, processing, marketing and distribution of fresh and frozen chicken, and also preparation, processing, marketing and distribution of processed and minimally prepared chicken. It sells ice pack, chill pack, bulk pack and frozen chicken, in whole, cut-up and boneless form, under the Sanderson Farms brand name to retailers, distributors, casual dining operators, customers reselling frozen chicken into export markets. The Company, through its subsidiaries, Sanderson Farms, Inc. (Production Division) and Sanderson Farms, Inc. (Processing Division), conducts its chicken operations. Sanderson Farms, Inc. (Production Division) is engaged in the production of chickens to the broiler-stage. Sanderson Farms, Inc. (Foods Division) is engaged in the processing, sale and distribution of chickens. The Company, through Sanderson Farms, Inc. (Foods Division), conducts its prepared chicken business. |
DETERMINE THE CLASSIFICATION:
This methodology would consider SAFM a "fast-grower".
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (11.02) relative to the growth rate (25.52%), based on the average of the 3 and 4 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for SAFM (0.43) is very favorable.
SALES AND P/E RATIO: PASS
For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. SAFM, whose sales are $2,816.1 million, needs to have a P/E below 40 to pass this criterion. SAFM's P/E of (11.02) is considered acceptable.
INVENTORY TO SALES: PASS
When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for SAFM was 7.09% last year, while for this year it is 7.82%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (0.73%) is below 5%.
EPS GROWTH RATE: PASS
This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for SAFM is 25.5%, based on the average of the 3 and 4 year historical eps growth rates, which is acceptable.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for SAFM (0.00%) to be wonderfully low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company.
FREE CASH FLOW: NEUTRAL
The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for SAFM (2.40%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.
NET CASH POSITION: NEUTRAL
Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for SAFM (11.54%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria. |
Watch List
The top scoring stocks not currently in the Hot List portfolio.
| Ticker |
Company Name |
Industry |
Current
Score |
| MMS |
MAXIMUS, INC. |
Business Services |
100% |
| WD |
WALKER & DUNLOP, INC. |
Consumer Financial Services |
94% |
| UVE |
UNIVERSAL INSURANCE HOLDINGS, INC. |
Insurance (Prop. & Casualty) |
55% |
| AFSI |
AMTRUST FINANCIAL SERVICES INC |
Insurance (Prop. & Casualty) |
51% |
| RTEC |
RUDOLPH TECHNOLOGIES INC |
Semiconductors |
51% |
| SIG |
SIGNET JEWELERS LTD. |
Retail (Specialty) |
48% |
| MYGN |
MYRIAD GENETICS, INC. |
Biotechnology & Drugs |
48% |
| UFPI |
UNIVERSAL FOREST PRODUCTS, INC. |
Forestry & Wood Products |
48% |
| TREX |
TREX COMPANY INC |
Forestry & Wood Products |
46% |
| BOFI |
BOFI HOLDING, INC. |
Regional Banks |
45% |
|
