Edmund Simms's avatar
$30.7m follower assets
What's the fastest and laziest way to find undervalued stocks?
One of my resolutions for 2023 is to be lazier—help me out.
Brett Schafer's avatar
Screeners
Edmund Simms's avatar
@ccm_brett What screens would you look at?
Brett Schafer's avatar
@valuabl All depends on what type of investor you are!
Edmund Simms's avatar
@ccm_brett I'm a value investor looking for undervalued stocks. Anywhere, any industry.
Joshua Simka's avatar
@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? :)
Edmund Simms's avatar
@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.
Joshua Simka's avatar
@valuabl That makes sense and thanks for the reply! So it sounds to me like you're a fan of value in all its forms.
Jensen Butler's avatar
Following the right people on Commonstock 😄
Edmund Simms's avatar
@jensen Any specific value-oriented writers or analysts sharing work on here you suggest?
Yegor's avatar
13Fs when market is down
Edmund Simms's avatar
@from100kto1m Are there any specific ones you read?
Yegor's avatar
@valuabl yes there is Phil Town, Francis Chou, Guy Spier, Li Lu, Mohnish Pabrai, Lindell Train, Pat Dorsey, Terry Smith, Dennis Hong, Michael Burry, Josh Tarasoff,

Bonus: ValueAct Capital
Josh Kohn-Lindquist's avatar
My favorite lazy adds to make are my Dividends500 stocks with a growing dividend and a payout ratio consistently below 50%. Has historically beat the market using these very simple rules.

Or else just a high and/or rising ROIC. Top quintile of ROICs tend to crush their peers.

If these two groups overlap, even better. Such as $POOL or $LOW.
Edmund Simms's avatar
@joryko This seems like a solid strategy. Do you have any quick ways to determine if the stock is undervalued? High ROIC is great, but only at the right price.
Josh Kohn-Lindquist's avatar
@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?
Edmund Simms's avatar
@joryko These are all great insights. Thanks for sharing.

My fortnightly process for the fund and newsletter is:
  1. 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.
  1. 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.
  1. If any look undervalued using analyst consensus estimates, I will do a deep-dive on them.
  1. 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.
  1. 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.
adrian knoblauch's avatar
@valuabl top, thanks! Damodaran has a neat way via CapitalIQ that he explains in one of his videos.
Josh Kohn-Lindquist's avatar
@valuabl Thank you, Edmund. This is really insightful.

I may try similar things to this, particularly the regional approach as I normally look at the US too much.

I also appreciate you sneaking fortnightly into a sentence. 😂 Well done 👍
Conor Mac's avatar
Look around as you pass through life, see where people shop, eat, spend money. Then check if they are public and cheap
Yegor's avatar
@investmenttalk that’s how I found $LKQ during covid lockdown. “While everyone was home them boys been working”
Joshua Simka's avatar
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.

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Rihard Jarc's avatar
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.
Tyler P's avatar
When in doubt just buy more Berkshire.

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