12/13/2009

Deep value small cap left behind based on the 3 year return

My filter included the financial hurdles below coupled with other qualitative and quantitative measures

1) Increasing book value: Current book value greater than the 2006 value.

2) Negative returns: A negative 3 year stock return.

3) No Dilution: Relatively constant or reduced share count from share buybacks over the past 5 years

4) Discount to normalized Earnings: Earnings yield using current operating income to enterprise value and only selecting those less than the earnings yield using the 5 year average annual free cash flow to current enterprise value. May indicate the company is trading at for less than the normalized earnings yield.

5) High magic formula Ranking: Rank high based on ROIC and earnings yield combination (magic formula)

6) Greed Factor: Annual SGA/Revenue < 30% (my management greed factor)

7) Margin of safety: Margin of safety based on selecting companies with an Enterprise Value/Market Cap < .90

The result was as a list of 8 deep value small cap stocks

Please Click to review stocks that I consider worth a second look

2 comments:

Jae Jun said...

Sweet list as always.

ShadowStock said...

I value this comment coming from a powerful serious value investing site like yours
Old School Value , Thanks!

In my opinion those 8 stocks listed are sound ideas that as a group have a high probability of significantly outperforming the market.