Week 14, 2018 – Top Stock Bargains Watch List

Author: AsgeirThen it has happened again: The US Stock Markets have been flirting with their lowest levels in months. Last time was February 8th (S&P 500 at 2581), now again the 2nd of April with the S&P touching 2582. And what happens? Of course, the market bounces back up again! But for how long, and how strong..? By the way, did you notice how close the latest “bottom” was to the previous one of 2581, isn’t it strange – or is it only me who takes notice of these kind of movements in the markets. Sometimes Mr. Market is just so predictable. Other times (most often) he surprises! The fans of technical analysis would say, ok now there is a double top developing – well, maybe there is, I wouldn’t be surprised at all if the index breaks its “support level” and drops further down. But will it happen? GOOD NEWS! It actually doesn’t matter at all! Let me encourage and remind you in these days when Mr. Market is shifting between a depressive, suicidal being and a super-positive, brilliant-future promising guy: MARKET FLUCTUATIONS! Yes, they do matter, and no they don’t. Fluctuations are cruisings of the waves at sea (well, waves can get high too!). BUT: Real values of high quality companies reflect the underlying, strong and consistent streams and currents. And they are not affected by waves…

True value investing is all about picking undervalued stocks: Good, healthy companies at bargain prices. Then it is not predicting or guessing the future. Instead it is using common sense. It is a well founded approach based on real numbers and real money value.

Changing subject: The stock quotes are from April 3rd. My excuses for not having calculated based on yesterday’s prices, but I just wasn’t able to get the time. Yes, I might be a bit slow, but on the other hand, it is partly done with intention too. Because a system for value investing is meant for investments over months, maybe a year or so. A company that qualifies one day does qualify the day after also, even though the stock price may have moved two or three percent. I hope you agree? I think it’s a good thing not to be dependent of the “nervousness” of Mr. Market and his changing moods from one day to another, making me troubled if I didn’t buy or sell that day.. The quantified scores that you get here from the top bargain lists are strong and reliable, and not shifting with the wind. GOOD NEWS AGAIN: An investment in these companies will be just as good tomorrow as they were yesterday.

Why has the average Market Adjusted Total Score (MATS) this week dropped 10 points? 

A couple of weeks ago in my last article, it was 89, now the average score is 79! Is it good or is it a bad sign? Well, it might be both, depending on if you are invested or not. Because it probably means that the average market discount that the top bargain stocks get has been reduced. The market has fallen even more since last time, but the top stocks have not gone down as much as the market on average. In other words, this tells us that while the market has continued its way down, the stocks from the Top Bargains Watch List have been stronger and performed better. Third time GOOD NEWS!

Please enjoy this week’s newsletter. I hope that you will continue to have great benefit of the Top Bargains Watch List.

Engage: Invite to a discussion or ask a question! Please leave a comment before you leave, I would be more than happy to involve and get connected. Any investing related issue or stock talk is heartly welcome.

If you want, you can take a look at the previous lists from earlier this year here: Top Bargains Watch Lists, 2018

Since January I have a portfolio where the top bargain stocks are included. You can follow the performance of every stock and the portfolio here: MATS Strategy – Portfolio Performance (updated monthly).

The average Market Adjusted Total Score (MATS) this week: 79,1

As always, I run the Magic Formula Investing screener to pick the 50 top companies with a minimum market cap of 300 Mill. USD. I intentionally exclude companies above 8.000 Mill. USD (the watch list is limited to small/medium cap companies). This week (as of April 3rd) the screener provided a portfolio of 34 companies. These companies from the screener all together gave an average MATS score of 79,1. Unisys (UIS) is not included in the average score, since this stock also this week got a very high score of 539,1 and this would have given an unbalanced average score, and several of the other top bargain stocks would have been excluded. The companies that ended up with higher than average score, are the top bargain companies listed in the table below.

Important notice from this week’s list:

  • Five of the stocks qualify two important criterias: Their Net Working Capital makes up 50 % or more of the Market Cap Value + they have a market discount of 50 % or more compared to their highest stock price during the last three years:
    • UIS, MDCA, CJREF, EVC and SRNE. The four first of these stocks claim the top scores and rank in top.
  • Three stocks get into the list because their Net Working Capital makes up 50 % or more of the Market Cap Value:
    • AMCX, AGX and TRNC. The stock price of these companies are between 50-100% of their highest levels in three years. That’s why they don’t get into the first category mentioned above. PS: This does not necessarily mean that they are not as “good” or “promising” as the highest ranked in the top five. The reason could as well be that the stock quote has started its rise and that the positive momentum is stronger.
  • Three stocks get into the list because they have a high “Financial Score” combined with a market discount of 50 % or more compared to their highest stock price during the last three years:
    • NTRI, BKE and SYNT. These companies have kind of the “opposite” advantage compared to companies with a high NWC/MCV. They get such a high score because they have very high returns on either assets/invested capital (ROIC) or enterprise value (Earnings Yield), most probably on both. You could turn it around and also say that they have an extraordinary efficient use (return) of their “little” capital.
  • Five stocks get into the list because they get a high “Financial Score” (Earnings Yield and Return on Invested Capital added together):
    • RPXC, EGRX, CNCE, EGOV and AEIS. The stock price of these companies are between 50-100% of their highest levels in three years. That’s why they don’t get into the category mentioned above. PS: This does not necessarily mean that they are not as “good” or “promising” as the ones in the other category. The reason could as well be that the stock quote has started its rise and that the positive momentum is stronger.

By filtering the stocks from the list this way, it will be easier to see which criterias that qualify each company. I hope this will be helpful when you need to choose which of the stocks to invest in.

Here is the list – 16 top bargain stocks with calculations and scores:

All companies listed here are the stocks that got an above average MATS (Market Adjusted Total Score). You can read more about how the numbers and scores are calculated and how the model works here: “The Market Adjusted Total Score – MATS”.

(You will find a further explanation of the parameters just below the table.)

 

Company

Market Adjusted Total Score*

High last 3 Yrs Closing Price Dividend paid* Percent of High Added Value (if >50 % discount from High last 3 Years)* Financial Score* Total Score S&P, Percent of High Market Discount* Date

UIS

539,1

23,07 10,4 45,1 4,9 511,2 518,6 91 41 2018-

04-03

MDCA

192,7

28,4 6,85 24,1 25,9 133,4 172,2 91 41 2018-

04-03

CJREF

183,5

15,13 4,52 0,4 32,5 17,5 136,8 163 91 41 2018-

04-03

EVC

170,8

9,26 4,5 0,05 49,1 0,9 149 150,3 91 41 2018-

04-03

RPXC

121,8

16,82 10,63 0,05 63,5 108 108 91 27,5 2018-

04-03

EGRX

107

97,17 51,54 53 88 88 91 38 2018-

04-03

AMCX

105,5

85,78 51,47 60 90 90 91 31 2018-

04-03

NTRI

97,7

59,95 26,95 0,25 45,4 4,6 70,3 77,2 91 41 2018-

04-03

AGX

97,3

74,5 42,4 56,9 80,3 80,3 91 34,1 2018-

04-03

CNCE

95

29,05 20,69 71,2 85,1 85,1 91 19,8 2018-

04-03

EGOV

84,3

25,35 13,4 0,08 53,2 65,4 65,4 91 37,8 2018-

04-03

BKE

84,2

50,98 22,2 43,5 6,5 54 63,7 91 41 2018-

04-03

SYNT

84,1

51,72 25,22 48,8 1,2 61,7 63,6 91 41 2018-

04-03

TRNC

82,1

21,55 16,68 77,4 75,3 75,3 91 13,6 2018-

04-03

SRNE

80,3

23,72 5,1 21,5 28,5 17,1 59,8 91 41 2018-

04-03

AEIS

79,4

94,25 62,26 66,1 66,9 66,9 91 24,9 2018-

04-03

S&P 500

2873 2614 91 91 9 2018-

04-03

*Market Discount: If the stock has fallen (or risen) more than the market, compared to the highest levels in three years, a factor of 0,5 is used into the “Market Adjusted Total Score” area to adjust for the difference.
*MATS: Market Adjusted Total Score. A score which aims to discover stocks with the best combination of financial performance and historical prices.
*Added Value: If >50 % discount from the highest price last 3 years, a factor of 1,5 is added to this difference into the “Total Score” area.
*Dividend paid: Dividend paid after the last quarter’s results.
*Financial Score: A company’s Earnings Yield (EY) + Return On Invested Capital (ROIC). If Net Working Capital makes up 50 % or more of the Market Cap Value, the score is adjusted for this: (EY+ROIC)+(NWC%/MCV%)+50. The last available numbers from the last quarter are used (data from Yahoo Finance).
Disclaimer: The Market Adjusted Total Score (MATS) calculated above, is only a result of my own calculations, and must not be interpreted as “market signals” in any way. I am not an investment advisor. Even though I do my best to avoid mistakes, wrong calculations may occur.

What changes are there in the Top Bargains Watch List since last time?

  • Two companies fall out of the list this time: Tivity Health (TVTY) and GameStop (GME) drop out because they are not among the companies in the MFI screener this week. TVTY seems to drop in and out of Greenblatt’s stock screener probably balancing on the edge of qualification criterias. When it comes to GME I guess it has to do with most recent quarter results, but it still gets a MATS of 138 points (down from 220 last time) in my calculations based on the latest financial results per January 31st.
  • Six newbies this time (!), some of them seem familiar:
    • CNCE, EGOV, BKE, SYNT, SRNE: These have been among the stocks from the screener for quite some time, but haven’t got MATS scores above average. Well, some of them have been on the list earlier but fallen out again because their stock price has gone up (which gives a lower MATS).
    • AEIS: It slightly gets into the list with a score of 79,4. This stock got into the Greenblatt screener last month.

CNCE, EGOV, BKE, SYNT, SRNE, AEIS, TVTY, GME

How can you compare your own stocks to the MATS Score of the top bargain stocks?

Here is an example of how to calculate the Market Adjusted Total Score. With this tool, you can type in the numbers from your own stocks into the formula, and watch how the values influence the MATS Score. In just a few seconds, you can see which values you need to put in to make your stock as strong as the top bargain companies. You can change several of the values, e.g. its market price or the financial score. Try it and see for yourself (in Dropbox, you need to click “Open” at the right to make it work in e.g. Excel Online):

Calculate the Market Adjusted Total Score

Text from my post in week 7, 2018: I typed in the values of Amazon Inc. (AMZN) just to check what score it has, and it gets a MATS score of only 15. The stock has a “Financial Score” of 18. To make AMZN get a score around the average top score of this week’s list (87,9), its stock price needs to be as low as $ 270! Or, with yesterday’s closing price of $ 1451, it needs a “Financial Score” of 90 to get a MATS Score of 87…

Is it possible to get a MATS calculation for other stocks too?

Yes, it certainly is!

The price of further MATS calculations (Market Adjusted Total Score):

  •  10 USD per calculation
  • 25 USD for three stocks (or the last available quarter plus the two last years for one stock).
  • 49 USD for one stock compared to five competing stocks (picked by you). MATS Scores are calculated for all six stocks. For even more relevant comparison, MATS Score of the stock is also adjusted to the average market discount of the five other stocks (in replacement of the adjustment vs the S&P 500 Index).

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