@valuabl These are still very broad definitions though. For instance, what kind of values are you looking for? Do you want a trash company at a good price you'll have to sell after 6 months or a year or 2? Or a good company with good prospects and compounding potential that's trading for a cheaper multiple than ever? A special situation like an arbitrage play? A turnaround? :)
@tomato I think that quality and value are inseparable. A high-quality business is worth more than a low-quality one. The firm's competitive advantages, prospects, or turnaround potential are all built into the valuation.
I only care about the gap between price and value.
Does that help? I'm sorry if I haven't been clear enough.
@valuabl For the Divs500 group, my favorite starting point is to look for current dividend yields above their 5-year averages. Highlights cheaper companies and locks in a better dividend right out of the gate.
Ultimately it just depends on each company though. Some are optimized for FCF versus earnings or vice versa. Like POOL is expensive on a P/FCF basis, but cheap-ish P/E-wise, which I tend to believe more in their case.
Or if CapEx spiked recently for some reason, P/OCF may be more helpful for me.
Do you have any specifics for more mature companies like these that you tend to use?
@joryko These are all great insights. Thanks for sharing.
My fortnightly process for the fund and newsletter is:
Download data on all 48,000 public companies and value each country's stock market in aggregate to get a list of potentially undervalued countries/regions.
Screen these regions for the top quartile of ROIC, EBIT/interest, and forecast revenue growth, and bottom quartile of EV/EBIT. I will narrow the parameters until I have ten or so companies to run DCFs based on analyst consensus estimates.
If any look undervalued using analyst consensus estimates, I will do a deep-dive on them.
If that's not fruitful, I screen based on negative total return over the past five years, low debt, low EV/FCF multiple, and positive expected growth.
If nothing attractive pops up out of that, I go to my watchlist of every stock I've ever valued and sort by the difference between valuation and price.
I don't know much about value investing—my portfolio would make Ben Graham spin in his grave. But if I had to do the exercise I'd use a screen. Here's one I ran on YCharts and I'm curious what you think! These parameters produced a list of 204 stocks. At 50 listings per page, that's just 8 pages to come through. I can tell that a vast number of them are foreign issues ("Y shares" and "F shares") and on first pass I'd probably skip those and stick with US-domiciled.
Probably have a list of the companies you liked as a business before this downturn. A bargain is always great if it's a company and business you already know and like. I always "screen" first for great business.