What screens are you running?
What screens are you running this weekend? I think I'm going to take a look at stocks with ROI 5 yr average over 15%, current ROI over 15%, margins greater than industry average margins, and PE less than 12.
I curious to see what other screens other value investors here are running to find value ideas. Please share what you are searching for and maybe also what you are finding.
The Newspaper :D Low P/E.
The Newspaper :D
Low P/E.
Screens? I'm using Brute Force!
I'm going through the S&P500 business by business and looking for consistent FCF generation. Speaking of which in order to save myself sometime I'm going to use Morningstar. Have any of you found significant errors in Morningstar's FCF Data?
Nick, are you looking
Nick, are you looking beyond the S&P 500 for companies with consistent FCF generation? I may be able to produce a list of all companies that have had consistent FCF over the past seven years.
Why exactly are you looking for these consistent FCF generators? Your reasoning may help me better understand what you are looking for and how best to produce it.
George can u send me the
George can u send me the list?
http://www.contrarianvalueinvesting.com/
Sure thing alexg. I'll
Sure thing alexg. I'll probably also share some of the list at Fat Pitch Financials when I finish putting it together.
The list of the most
The list of the most Consistent Cash Creators is up at my blog. I have a longer list that I can pull together and email to you if you are interested in seeing more of them.
Morningstar
Morningstar is an excellent source of financial data for 10 years running. With FCF, be a little careful because they don't exclude growth capEx from maintenance, so FCF is low balled. Also, without normalized some of the OCF inputs, FCF can swing wildly. Overall, though, Morningstar is great for cash flow numbers.
What are "OCF inputs"? I'm
What are "OCF inputs"? I'm sure it's something obvious.
Free Cash Flow Calculations
Jeffrey,
Thank you for your response. Great point. This is particularly important to note when valuing growing companies like Walmart. Obviously there is a bit of art involved in the calculation of FCF. My first experience in FCF calculation is from Whitney Tilson's article on the Motley Fool. What is your methodology?
Operating Cash
Operating Cash Flow
http://www.contrarianvalueinvesting.com
I usually apply a sales
I usually apply a sales growth rate, an "operating cash flow margin" and a maintenence capex to revs calculation. So the only growth projection I make is sales. Then ill factor in any changes in OCF margin over the years or capex as a % of revenue over the years, and let FCF determine itself. Apply a reasonable perpetuity value (2.5% is my max, long term GDP growth rate), and discount at 9-11% depending on the company. I use a 40-50% MOS.
Jeffrey, RE: Capex
What process do you use to distinguish between maintenance and growth CAPEX?
I've also been thinking
I've also been thinking about maintenance capital expenditures. I think unless management tells you in their filings what maintenance capital expenditures is, it is very difficult to determine. I tend to consider most capital expenditures as maintenance related unless there is a big spike in capex above depreciation expenses.
FCF Maintenance CAPEX vs. Growth CAPEX
George,
Thinking of all or most CAPEX as maintenance CAPEX is certainly easier and works in many cases; however, I don't think we should stop there. In my mind, maintenance CAPEX needs to be backed out of Operating Cash Flow to come up with "owner's earnings" (FCF) because that is not capital that can be returned to shareholder without shrinking/damaging the business. Growth CAPEX; however, is capital that can and is (if allocated to positive NPV projects) returned to shareholders. By subtracting all CAPEX (instead of just maintenance CAPEX) we could penalize a growing enterprise.
It seems to me that the ability to accurately differentiate between the two is critical in a FCF based valuation of a growing enterprise. That said I don't know how to consistently figure differentiate between the two. I'm really hoping that the "Asset Valuation" portion of the level 2 CFA curriculum helps with this; I'm almost finished studying the Financial Statement Analysis book but there has been no mention of this topic. I did however find the discussion around manipulation of the cash flow statement very interesting.
I'm very interested on your (and anyone else's) thoughts on this topic as well as the topics of normalized capex and FCF.
Perpetuity value
Hey Jeff,
Isn't a 2.5% perpetuity growth value a little low? That doesn't even seem to cover inflation. I'm guessing you are using a real GDP growth rate, which I believe is around 2.5%. I use to make this same mistake, so that is why I recognized your 2.5% number. However, most DCF models are run with nominal numbers. The long-term nominal GDP growth rate is closer to 5%. You might want to consider revising your models to take that into consideration.
I use a 5% perpetuity growth
I use a 5% perpetuity growth rate as well. IIRC Pabrai doesn't assume a perpetuity growth rate and just assumes that the enterprise is liquidated at year 10. Thoughts?
One more thing: For DCF I use a 15% discount rate; however, Buffett says the discount rate doesn't matter as long as you're consistent in your application.
GDP numbers
If you base your long term perpetuity growth rate on GDP, you should check out this GDP calculator.
My Screen
I created a group on my website where I posted the screener I use, which includes a list of all U.S. stock tickers (NYSE, NASDAQ, and OTC). Basically, you can go to almost any website and grab whatever you want for the stock tickers that are provided; for instance, the price-to-book values from Yahoo! Finance. I've posted instructions on the group's website, which can be found at: http://www.valueinvestingplanet.com/groups/screener
PEG< 1
PEG< 1
low market cap <800mil
double digit ROE,ROI
high earnings growth for the year greater than 20-30%
playing with beating earnings estimates
debt to equity < 1 (to weed out banks and financials)
Net current asset stocks are always good to find (should be more of these opportunities in this kind of market)
Hey Mark, that sounds like a
Hey Mark,
that sounds like a Peter Lynch screen?
http://www.contrarianvalueinvesting.com/