A Value Investor’s Stock Market

A recent CNBC article I was reading the other day mentioned how the current stock market is confusing day traders. These traders are having a difficult time spotting trends because… there are no trends to spot.

Since the beginning of 2016, traders have been able to point to at least one particular factor responsible for driving the stock market. Stocks closely tracked the price of oil beginning back in January which was then followed by Brexit and interest rates. And now… they seem adrift as these momentum traders are unable to find any meaningful correlation between stocks and any other macro indicator.

A good time for value investors

This is welcoming news for all the value investors out there. These low correlations suggest that stocks may actually track their fundamentals as opposed to the broad macro environment. This left me thinking about an article I wrote about Warren Buffett — probably the best value investor of all time.

In this article, I discuss Buffett’s investing strategy which is basically buying companies with strong fundamentals and trading at a reasonable price. I then use the finbox.io screener to search for undervalued companies based on the following criteria:

  • 7yr Net Income CAGR > 6%
  • 3yr Net Income CAGR > 7%
  • ROE > 9%
  • ROIC > 6%
  • Capex Margin < 4%
  • Net Income Margin > 4%
  • finbox fair value upside > 10%

Understand why I selected this criteria here.

But now with stocks more likely to track their underlying fundamentals (earnings, growth, margins, etc.) I decided to re-run the screen and found 38 undervalued stocks. Pearson (PSO), Tesoro (TSO), Gilead Sciences (GILD),Brocade Communications (BRCD), Tyson Foods (TSN) and United Technologies (UTX) are just a few of the names I found.

You can view the latest results here.

Value investors may want to take a closer look at these companies. With no particular factor driving the market, these stocks will likely start trending closer to their intrinsic values.