In my recent interview, Fox Business’ David Asman digs into the details of what makes a good stock in the current market environment.
Life Time fitness CEO predicts 15% growth at best. In my weekly Danger Zone interview, I explain how that expectation, even if it comes true, implies unrealistic member and profit growth. The current stock price (~$46/share), using historical growth rates (12%), implies 20 years of profit growth. The member growth required to justify that level…
Smart investors consider more than just the dividend of a stock. They also consider the principal risk. If the principal risk is greater than the dividend yield then the dividend is of no real value. I see the principal risk of this stock at more than 15% with a fair value closer to $50 – after adjusting for the pension accounting shenanigans.
“New research on the performance of institutional portfolios shows that after risk adjustment, 24% of funds fall significantly short of their chosen market benchmark and have negative alpha, 75% of funds roughly match the market and have zero alpha, and well under 1% achieve superior results after costs—a number not statistically significantly different from zero.”
The impact on valuation: instead of a fair value in the mid $50s, I now see it in the low $40s – about 30% lower than where the stock is today. 30% dwarfs the 4% dividend yield.
Check you the latest Danger Zone interview on a company employing misleading merger accounting.
September’s Most Dangerous Stocks report is now available to the public. 6 new stocks were added this month.
September’s Most Attractive Stocks list is now available to the public. 13 new stocks were added this month.
Sometimes when I analyze a stock, I am reminded of the marvels that investment bankers can do for their valuations, especially if the company is a good client. With its recent $3.7 billion acquisition of Gen-Probe, I would bet that Hologic (HOLX) made its investment bankers quite happy. Investors, on the contrary, should sell the stock and not be happy with that deal.