Week 9, 2018 – Top Stock Bargains Watch List

Author: Asgeir–Ironic glance from the sidelines:– The top bargains watch list for this week is finally ready. I know, I know, why distribute “old” quotes (Asgeir, these datas are one week old!) in times when everyone else emphasize the importance of real-time updates etc? Well, maybe it’s just the old school part of me that insists that a few days of delay won’t hurt. Or maybe the fact that real time information and updates actually won’t make you a better investor… Or most probably, a combination of the two? From time to time I have to remind myself, computers and fancy program software actually never made the difference between the good and the bad investor. But I struggle to believe it sometimes. A good reminder is knowing that Benjamin Graham and others in his clever category, never ever used a computer. Well, times were different then, right? No one had computers at that time. Ok, I accept that argument. On the other hand, that fact should indicate that today we make a whole bunch of better investment decisions. And fortunately we do. Right? Yes, we do, of course we make better investments than the “stone age” people, who never even had the possibility to click “Buy” or “Sell” on their screens. What a misery that must have been, living in those times, never having the possibility to make a well-founded and computer-based decision spitting out a real-time recommendation from my 1.200 pre-defined criterias… poor people, what they missed! –End of ironic glance from the sidelines–

Anyway, the markets seem to have recovered quite a bit since the drop-downs a couple of weeks ago. Was it just a small and needed correction, or was it a pre-warning of what we can expect ahead? Well, it might be a bit early to say… did we (the markets) actually reach the top this time, or did we just cross another valley on our way to a new top? Until we know for sure (which we never will until we wonder when the bottom is reached!), I have no intention of waiting and just watching, because there are always great possibilities in the markets for the awake investor.

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

You can read last week’s list here: Top Bargains Watch List – Week 7

Anyway, please leave a question in the comments field area at the bottom if anything is unclear, or if you just simply want to discuss a related issue.

The average Market Adjusted Total Score (MATS) this week: 84,0

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). At the end of last week (as of Feb 23rd) the screener provided a portfolio of 35 companies. These companies from the screener all together gave an average MATS score of 84,0. Like the last couple of weeks, one company is not included in the average score, which is Unisys since this stock also this week got a very high score of 522,5 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.

Some interesting things to notice from this week’s list:

  • Two of the companies that I mentioned last week because of their low market price, they drop out of the list this time:
    • Amag Pharmaceuticals Inc. (AMAG): Since last time (from Feb 13th until Feb 23rd) the stock quote has risen 43 %. This gives it a “Financial score” of 21,8 (vs 50,7 last time) and a MATS score of 80,7, just below the average score of the 35 companies from the MFI screener. In other words, it still is a highly recommended stock, but not among the supreme ones with an above average score.
    • Syntel Inc. (SYNT): Much of the same goes for this company, but not exactly. The quote has risen 25 % since last time, but its “Financial Score” is about the same with 59,9 points vs 61,7. The main difference is in its added value where it last time was added 13 points because of more than 50% market discount from highest levels during the last three years. Now it gets zero points added. This results in a MAT Score of 82,0 vs last time 96,3. SYNT is obviously very close to stay in the list, but slips just below the average score of 84 points.
  • 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, GME, MDCA, PDLI and CJREF. Do we have the next “winners” among these..?

Here is the list – 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 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*

UIS 23,77 11,45 48,2 1,8 497 499,7 95,6 45,6

522,5

2018-02-23
GME 47,44 15,97 0,38 34,5 15,5 157,5 180,8 95,6 45,6

203,6

2018-02-23
MDCA 28,4 8,75 30,8 19,2 140,6 169,4 95,6 45,6

192,2

2018-02-23
PDLI 7,29 2,48 34,0 16,0 123,7 147,7 95,6 45,6

170,5

2018-02-23
EVC 9,26 6,9 0,05 75,1 131 131,0 95,6 20,5

141,3

2018-02-23
CJREF 17,32 6,39 0,16 37,8 12,2 87 105,3 95,6 45,6

128,1

2018-02-23
RPXC 16,82 10,2 0,05 60,9 102,6 102,6 95,6 34,7

119,9

2018-02-23
AGX 74,5 39,25 52,7 89,5 89,5 95,6 42,9

111,0

2018-02-23
AMCX 85,78 51,99 60,6 87,2 87,2 95,6 35,0

104,7

2018-02-23
HRB 37,26 26,82 0,24 72,6 86,5 86,5 95,6 23,0

98,0

2018-02-23
EGOV 25,35 13,75 0,08 54,6 71,7 71,7 95,6 41,0

92,2

2018-02-23
CNCE 29,05 21,75 74,9 81,1 81,1 95,6 20,7

91,5

2018-02-23
S&P 500 2873 2747 95,6 23 23 95,6 4,4 2018-02-23

*MATS: Market Adjusted Total Score. A score which aims to discover stocks with the best combination of financial performance and historical prices.

*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.
*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?

  • In addition to the companies/stocks already mentioned above (AMAG and SYNT), there is one company dropping out of the list this week: Tivity Health Inc. (TVTY). The reason is because it does not qualify Joel Greenblatt’s screener as a Magic Formula Investing company this time. Which in my opinion is quite surprising, because it still gets a Market Adjusted Total Score of 215,7 (!). But I have decided to be committed to the MFI screener as a basis for qualifying stocks to my watch lists. Therefore, it drops out. Anyhow, the high score should indicate some great potential…
  • We got two newbies this time: MDC Partners Inc. (MDCA) and RPX Corp. (RPXC). MDCA jumps right into 3rd place in the list with a MATS of 192,2 (even though I wouldn’t underestimate the potential of the others below), and RPXC gets into the middle with a MATS of 119,9. Let’s embrace them and give them a heartly welcome into the Top Bargains Watch List!

MDCA, RPXC, TVTY, AMAG, SYNT

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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