Impressive profit growth and a valuation well below peers helped land Lear Corp on July’s Most Attractive Stocks list. Even better, aligning executive compensation with return on invested capital earns the stock a spot on July’s Linking Exec Comp to ROIC Model Portfolio.
This week, we’ve found a company the market loves to hate in spite of its excellent operating results. With strong profit growth, prudent management decisions for future growth, and a greatly undervalued stock price, this week’s Long Idea is:
Instead of our usual weekly sell/short call, we are going to open 2015 with two of our favorite stocks for the upcoming year. These stocks have strong growth potential in the coming year, and are attractively valued, trading below their economic book values.
Picking from the multitude of sector mutual funds is a daunting task.
As long as Ford’s strong profit growth and market share gains continue, this stock has a lot of upside.
The Consumer Discretionary sector ranks fourth out of the ten sectors as detailed in my Sector Rankings for ETFs and Mutual Funds report. It gets my Dangerous rating, which is based on aggregation of ratings of 18 ETFs and 21 mutual funds in the Consumer Discretionary sector as of April 2, 2014.
Momentum chasing is never a good strategy. RCL significantly outperformed the market last year, while F lagged it slightly, but don’t expect those trends to continue in 2014 for either stock.
DTAs artificially raise reported assets and do not help generate operating profit while DTLs are like a source of interest-free financing. We remove the impact of DTAs and DTLs from our calculation of invested capital to ensure the more accurate measure of a firm’s return on invested capital (ROIC).
Retail HOLDRS (RTH) is our top pick for consumer discretionary sector ETFs. RTH is one of 51 ETFs that gets an attractive-or-better rating. We rate the investment merit of the top six consumer discretionary sector ETFs based on our coverage of 471 stocks in this sector. Per our first-quarter-2011 review of U.S. Equity Sector ETFs,…
Most investors are not aware that companies hide one-time and unusual charges and income inside normal, operating line items (e.g. “Cost of sales”) on their income statement. These hidden items can mislead investors by artificially decreasing/increasing GAAP earnings. We found 13,000+ one-time items buried in normal line items like “Cost of Sales” by studying the Footnotes of 10-K filings from 1998 thru 2/15/2011. This research revealed that companies have concealed over $41 billion in one-time items.
Ford gets our Dangerous Rating. This means F has poor quality-of-earnings and an expensive valuation. For example, F’s ROIC at 0.6% is in our Bottom Quintile. And the valuation of the current stock price ($15.07) implies the company will grow its profits at 10% compounded annually for over 40 years. The takeaway: avoid this stock.