There once was a time when the "learned" believed the sun revolved around the earth, the world was flat, and government spending led to sustainable economic growth. This week's Investment Advisor Ideas focuses on another such misconceived idea, classifying stocks with growth and value designations. While the investment consultant community has firmly adopted the growth vs. value concept, at some point, hopefully in the near future, this classification will go the way of the buggy whip, leaching, and the above silly misconceptions. After all, the classification tends to imply a choice between owning a stock that can grow but doesn't offer much value, versus one that offers a compelling value but doesn't offer much growth. Such a choice is silly - every stock valuation implies a future stream of cash flows to justify its price. If today's price implies a smaller cash stream than a company is capable of generating, it is a value stock. If a stock's price implies greater cash stream than a company is capable of generating, it is a value trap, regardless of how sexy its products are or how strong its future revenue growth appears. It does not get much simpler than that.
PG: A company that earns above its cost of capital (positive Economic Margins) and is growing its asset base is considered to be following a wealth-creating strategy. Back-tests have proven these companies to be more likely to outperform those companies following a wealth-destroying strategy (negative Economic Margins and growing assets). PG also is trading below it's intrinsic value.
Despite a full-time job, frequent opinion pieces, not to mention a wife and children, Bill found time to write what I think is an essential book, The Courage to Do Nothing. Flax’s excellent book is a moral defense of markets and freedom, and if read it will greatly strengthen the arguments made by existing free-market advocates, while possibly converting more than a few skeptics.
Cisco delivered a shock to the investment world, lowering its quarterly and fiscal year sales guidance by a notable amount, causing the company’s shares to suffer a 16% drop today. However, we question whether such a drastic drop in share price was justified given the adjustment to guidance.
The third annual ranking of the chief executive/applied finance group wealth creators—and destroyers—sees new contenders surface and several that sustained performance through tough times.
Now in its third year, the wealth creation index developed by Chief Executive, Applied Finance Group and Great Numbers! attempts to identify those business leaders who have performed best in creating true economic value—as opposed to mere accounting value—as measured by GAAP metrics.
High interest rates aren't a crisis as Ben Bernanke assumes, instead they're a positive symptom of past mistakes which ensure that no more capital will be destroyed supporting what has already failed.
The NFL is the nation's premiere sports league by far, but there's room for improvement through better incentives with regard to draft position, team ownership, and the sharing of television/merchandize revenues
Investors who employ technical analysis tend to monitor stock trading volumes in comparison to its movements in price in order to predict upcoming reversals in trends in attempt to identify attractive entry points and essentially “time the market”. Today, we will identify which actively traded stocks you should buy
After preparing my taxes last year, my accountant noticed my horror and responded that “You’re not playing the game right. Buy a house with a large mortgage, have children, or do something that’s deductible to reduce your tax bill.” The accountant’s words were true, and a shining example of a wealth transfer that’s not spoken of enough.
The Tea Parties have returned the 10th amendment and constitutional governance to the discussion, and clearly impacted elections. What they don't seem to talk about much is the weak dollar's role in our malaise. Absent changes in dollar policy, the Tea Party movement could be discredited too.
In The Seven Fat Years, the classic account of the U.S.’s economic revival in the 1980s, the late Robert Bartley addressed the economic hardship experienced in the 1970s, and specifically spent time on the oil spikes that occurred during the lost decade. Of great importance, Bartley made sure to put “spikes” in quotes when describing the major run-up in oil prices.
Created by The Applied Finance Group, The Economic Margin (EM) Framework was developed to evaluate corporate performance from an economic cash flow perspective and is an alternative to accounting-based valuation metrics. EM measures the return a company earns above or below its cost of capital and provides a more complete view of a company’s underlying economic strength.
Who would have thought that Burrito Bowls and Red Envelopes would be hotter than the I-pad in 2010? Sounds crazy but it’s true. By looking at the YTD performance chart from Yahoo! Finance you can see that the stocks for Chipotle Mexican Grill (NYSE:CMG) and Netflix (NASDAQ:NFLX) have significantly outpaced Apple Inc.’s (NASDAQ:AAPL) stock price so far this year.
There are several articles and studies around the finance industry that talk about the value of sell-side analyst ratings or the lack thereof. Most of the studies provide a negative view of the accuracy of ratings from sell-side analysts and bring to light the many potential problems associated with sell-side analysts and their ratings including conflicts of interest with the firms that employ them as well as their tendency to appease management teams who provide them with information not available to the public by providing favorable ratings for those firms. Some other problems associated with sell-side analyst ratings include: 1) Buy recommendations outnumber sell recommendations some speculate for the purpose of making management happy. 2) Analysts often downgrade firms after negative news has already hit public eyes. 3) Unable to purchase the stocks that they cover, no “skin in the game” 4) Analysts often find comfort in being a part of the majority and often times fall victim to groupthink. 5) Compensation analyst’s receive has been found to be tied to the investment banking business the analyst generates.
What are the drivers of the recent heat-up in M&A activity in the past few weeks? A healthy prospect of the Global Economy? Cash burning holes in CEOs’ pockets? Valuation for the acquisition targets is compelling?
