Investing Tools for Investors Looking to Excel
10/21/02  

A portfolio of stocks that have been subjected to long under-performance, but which appear to possess long term value to be realized in a less momentum driven market. 

"New Money"Value/Turnaround Portfolio

Value is not without risk. While the names appear cheap vs. the market, there may be reasons while the trailing data does not reflect the obsolescence of the business model or outflanking of the products. Earnings disappointments can take a growth/momentum play and reduce it to a value play. However, value players may not see the opportunity for some period. Rotating a stock from momentum to value can take months or longer. Often, expectations of cyclical downturn will hurt stocks as investors flee names they feel will have to weather lowered earnings estimates.

Value can be a function of of inexpensive P/E/s, Price/ Cash Flow, or P/E to sustainable forward earnings growth. Value also can be a function of Price to Book Value of the stock. Out search criteria have attempted to use a number of tools reflecting lower prices vs earnings, low prices vs. book value, and low debt risk.

Here are the criteria and the names. The criteria are based on relative values vs. the market, as opposed to absolute values. Please note we do not use Price/Sales, as the list would be over-weighted with retail. Also, because we use P/E as one criteria, we eliminate cash flow businesses (like CATV or some Telcoms), since they do not generate earnings. However, we run these same criteria, using Price/Cash Flow to look at those possibilities. Finally, we put a growth requirement to eliminate  business models that appear dead in the water. In this sense we have a GARP element to the selection criteria. The debt/equity ratio elements banks, although we also search without this leverage element. 

• Projected P/E Nxt FY......... Low 

• Price/Book Ratio........Low

• Price/Cash Flow........Low

• Company Growth Ratio........High

• Co/S&P Growth Ratio......... High

• Annualized 5 yr Proj. EPS..... High

• Free Cash Flow/ Share......... High

• Sales/ Cash Flow Share........ High

• Debt/ Equity Ratio........ Low

• Debt Service/ EPS.......... Low

Go here for price quotes, charts, profiles, and more information on the companies mentioned below. The names below were posted in June and will allowed to run until August 14, 2000 until targets or stops are hit. Please note that many sell stops have been raised due to appreciation in these names.

To see previous New Money Value/ Turnaround Portfolios, go here.  

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