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
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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