THE TOP BARGAINS WATCH LIST FOR THIS WEEK (WEEK 4, 2018) IS NOW AVAILABLE! Last time I wrote that the list will be updated weekly, but now that is two weeks ago… So this time I say, I will try to update it weekly. As mentioned earlier, the numbers may seem a bit confusing at first glance, but I have chosen to include the numbers leading to my results, so that it might be easier to follow my calculations. Anyway, don’t hesitate to ask me a question if anything is unclear by leaving a comment.
To repeat myself, it is not very complicated, I believe in keeping it simple, and I believe that sticking to simple, easy-to-follow investing principles is the big key to succeed over time in the markets.
Explanation of the results and how the Market Adjusted Total Score (MATS) works
All companies listed here are the stocks that got an above average MATS (Market Adjusted Total Score). First I ran the Magic Formula Investing screener to pick the 50 top companies with a minimum market cap of 300 Mill. USD. I intentionally excluded companies above 8.000 Mill USD, which this week brought me a portfolio of 34 companies. For every company I then make a calculation of Earnings Yield (EY) and Return On Invested Capital (ROIC), these numbers are added together (eg. 12 % + 17 % = 29 points). These are defined as performance/efficiency indicators. In addition, I adjust these numbers if Net Working Capital (NWC) exceeds 50 % of the market cap value (eg. if NWC is 60 % of the market cap, 10 points are added. If NWC is 90 % of the market cap, 40 points are added). This leads to the Financial Score in the table below. The scores are further adjusted for the stocks’ market price during the last three years (eg. a company with a 50 % lower stock price than the highest level in the last three years, is added 25 points). Finally the numbers are adjusted to their development towards the S&P 500 Index (since the S&P is at its highest levels in three years, every stock will get zero or more points as a discount related to the Index).
The average Market Adjusted Total Score (MATS) for last week (January 19th) was 84,3..
The 34 companies from the screener all together gave an average MATS score of 84,3, slightly down from 86,6 two weeks ago. The companies that ended up with higher than average score, are the top bargain companies listed in the table below.
How can TVTY (Tivity Health Inc.) get such a supreme score of 217,9? This is almost 40 points higher than the second best, Game Stop (GME). TVTY’s stock price is only 20 percent lower than its highest levels in three years, so that can not be the explanation (only 10 points added to the financial score because of this). As you can read in the table below, it has a Financial Score of 208, so the explanation must be in the calculation of this score. TVTY has a very high Return on Invested Capital (ROIC) of 196,7 %, since its EBITDA is around twice as high as the company’s Net Fixed Assets (180 over 91 mill USD). This gives a ROIC of 196,7 %, which added with Earnings Yield (EY) of 11,3 % gives a Financial Score of 208.
How will the stock prices affect the Market Adjusted Total Score (MATS)? The easiest way to explain this, is with an example from this weeks’s Top Bargains Watch List. As you can see, AGX gets a MATS score of 93,3, even though its Financial Score is as high as 73,6. AGX’s stock price is at 60,5 % from its highest levels in three years, so it gets only about 20 points added to its Financial Score (100-60,5=39,5). Half of this is 19,75. This will result in a MATS of 73,6 + 19,75 = 93,3. Another company, AMAG, gets a MATS score of 122,3, even though its Financial Score is only 49,7. AMAG’s stock price is at only 18,3 % from its highest levels in three years, so it gets as much as nearly 48 points added to its Financial Score (Explanation: The “Added Value” of 31,7 (50 minus 18,3) points in the table is added a factor of 1,5, this gives about 48 points). Another 25 points is added because of its market discount related to the S&P 500 Index (100-50=50). Half of this is 25. This will result in a MATS of 49,7 + 47,6 + 25 = 122,3. In this case, AMAG gets a MATS which is nearly 30 points higher than AGX, even though AGX had a Financial Score 24 points higher than AMAG.
You will find a further explanation of the calculations at the bottom of the page.
|Company||High last 3 Yrs||Current 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*||Market Adjusted Total Score*|
*Market Discount: If the stock has fallen (or risen) more than the market, a factor of 0,5 is used into the “Market Adjusted Total Score” area to adjust for the difference.
*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.
*MATS: Market Adjusted Total Score. A score which aims to discover stocks with the best combination of financial performance and historical prices.
What changes are there in the Top Bargains Watch List since last time?
Two companies leave the exclusive Top Bargains List this week: Tronc Inc. (TRNC) and Sorrento Therapeutics Inc. (SRNE). They get a MATS score of 77,2 and 78,5. Since the average score was 84,3 points this week, they were close, but on the wrong side of the average score.. The three newbies this week are Concert Pharmaceuticals Inc. (CNCE), Corus Entertainment Inc. (CJREF) and NIC Inc. (EGOV), the MATS scores of these companies can be seen in the table above.
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.
Is it possible to get a MATS calculation for other stocks too?
Yes, it certainly is! For any company in the US Stock Markets (or any other leading Stock Exchange in the world) it is possible to make a calculation of the Market Adjusted Total Score. As long as the company’s financial results are made available, I will be able to make this for you. If you read this, and you have not received a MATS calculation of your favourite stocks before, you can have one calculation FOR FREE! Just make a comment below of which company/stock you need to get a MATS score of, and you will receive this within a day or two. Or send a request to my e-mail at firstname.lastname@example.org.
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).