# Fundamental Value Buys - add yours



## Ozymandias (19 October 2009)

Despite the market lifting off its lows there is still a lot of cheap stocks out there. What value buys are you looking at now, and what is the P/E?

Spark Infrastructure - SKI - 4.61
Forge Group - FGE - 6.71
Nexbis - NBS - 3.26
Netcomm - NTC - 6.95
Nomad Group - NOD - 6.14 (excluding impairment)
Pan Pacific Petroleum - PPP - 6.07
Jumbuck - JMB - 4.54


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## Julia (19 October 2009)

*Re: Value Buys - add yours*

One of my good performers at present is OKN.


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## Joe Blow (20 October 2009)

*Re: Value Buys - add yours*

This thread is starting to look like turning into a rampfest as these threads invariably do. If it continues down this path it will be closed.

As the original poster indicated, please post the P/E and ideally a short statement detailing why you believe a particular company represents "value".

I think it is also prudent to disclose whether or not you hold the stock.


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## Julia (20 October 2009)

*Re: Value Buys - add yours*



Joe Blow said:


> This thread is starting to look like turning into a rampfest as these threads invariably do. If it continues down this path it will be closed.
> 
> As the original poster indicated, please post the P/E and ideally a short statement detailing why you believe a particular company represents "value".
> 
> I think it is also prudent to disclose whether or not you hold the stock.




Re my earlier post on OKN, I don't know the PE because I don't use the PE as a decider of whether to buy the stock.
It's up over 100% since I bought it in June.  If the trend reverses, it will be sold.
So, at the risk of diverting the thread, I don't buy on the basis of 'value' depicted by the PE.
Others will undoubtedly disagree.


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## Ozymandias (20 October 2009)

*Re: Value Buys - add yours*



Joe Blow said:


> This thread is starting to look like turning into a rampfest as these threads invariably do. If it continues down this path it will be closed.
> 
> As the original poster indicated, please post the P/E and ideally a short statement detailing why you believe a particular company represents "value".
> 
> I think it is also prudent to disclose whether or not you hold the stock.




Disclosure: I have holdings in SKI, FGE, NBS.

My intention in creating this thread was for people to share and discuss possible value buys (good value as judged by fundementals specifically). If future posts aren't on topic I'll be happy to see the thread closed.


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## BottomDraw (21 October 2009)

*Re: Value Buys - add yours*

Interesting topic, we all love looking at stocks, however, you are both borderline ramping if the info is this thin and inaccurate, I would call a value "stock" something that has a PE less than 7 (maybe 9 or 10 for some debt free companies) and/or next years PE can be proven to be likely to fall below 7 due to real earnings, also it is nice to have a low debt in today's environment and be a bit inflation proof and/or deflation proof... phone, gas, electricity, roads, water... i.e. boring essential utilities can modify their prices to suit inflation because you need them. They are slightly regulated though.

SKI 45.00
FGE 7.50 (interesting)
NBS  3.00 rofl... http://www.theage.com.au/business/falling-down-on-the-town-20090909-fhoo.html
might be ok I suppose, I mean lots of us get pissed like that in Australia, counts as advertising in my books, you might want to read every report first for something like this though, maybe there is a reason for his being drunk.
NTC 6.5 (I hold this one, the only obvious risk is that Telstra has been unpredictable in the past, they also have to deal with constant change) recommended by the AFR twice this year as a bargain. Debt free, expanding to provide services with the hardware, going world wide, making lots of big friends, huge upside.
NOD 10.00 (interesting though)
PPP 6.25
JMB 4.50 (Jumbuck is interesting, but a previous director was very dumb and margin loaned all his shares and lost so an uncaring third party has the shares, also a director in the other company Q has a bad reputation... they just diluted the Q thing with a 2 for 3 offer right after it got a good writeup in the AFR, also I think they need to re-brand OZAtion.. it is a stupid name, if I was them I would use the Jumbuck domain for the auction site, way cooler). Q was recommended by the AFR this year as a bargain.

OKN has a PE of 25.25 (22 the other day I think), I did not read about it, I don't know how it could be value unless there is an announcement somewhere about more than tripling profit or something?


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## tonza (21 October 2009)

*Re: Value Buys - add yours*

As a practitioner of the value school of investing I have recently added more Forge Group (FGE) to my portfolio despite the incredible run it has had recently. At the present moment my screen is showing a PE of 7.55. This is obviously not the only reason I have purchased it. 

The company has strong cash earnings, 34.3 cents per share. If you use the 08 capex of 9.2 cents per share (to be extra conservative because 2009 was only 2.4cps) the company has a free cash flow of 25.1 cents per share (accounting earnings are 20.5cps). Plug this in to a discounted cash flow formula assuming absolutely no future growth whatsoever and a discount rate of 12% and you get a value of $2.10. I know these numbers are ridiculously rough (especially my usage of capex figures) but they give an indication of approximately what region the companies intrinsic value lies is. 

Other encouraging features of the company:

- Management has issued a revenue guidance of $200+ million for FY2010 - up from $169 million in FY2009. They will be providing further earnings guidance for 2010 at the AGM next month. 
- Low debt.
- Has exposure to the Gorgon project (albeit small) but this could lead to other opportunities at the project and in other upcoming gas projects one would think.
- Announced yesterday that it would be recommencing work on Lynas Ltd projects that were suspended last year. 

I think this is definitely a medium term hold and investors are looking for a distinct indication of a recovery in the economy before investing in a company that has exposure to a volatile and highly cyclical industry - mining construction. To me Forge represents a brilliant opportunity for a counter-cyclical play in a company with fundamentals that haven't changed at all throughout the GFC. Sit back and relax.


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## Julia (21 October 2009)

*Re: Value Buys - add yours*



BottomDraw said:


> Interesting topic, we all love looking at stocks, however, you are both borderline ramping if the info is this thin and inaccurate,



Joe has removed posts he considers ramping.



> I would call a value "stock" something that has a PE less than 7 (maybe 9 or 10 for some debt free companies) and/or next years PE can be proven to be likely to fall below 7 due to real earnings, also it is nice to have a low debt in today's environment and be a bit inflation proof and/or deflation proof... phone, gas, electricity, roads, water... i.e. boring essential utilities can modify their prices to suit inflation because you need them. They are slightly regulated though.



You're entitled to your view of what constitutes 'value'.  To me it's a rising share price.  It's a bit hard to make money if this isn't happening.
You can buy a stock with the greatest fundamentals ever and the lowest PE but if market sentiment doesn't agree that it's just the greatest, and the stock doesn't rise in price,  you're not going to make money, are you!



> OKN has a PE of 25.25 (22 the other day I think), I did not read about it, I don't know how it could be value unless there is an announcement somewhere about more than tripling profit or something?



As I said earlier, I don't focus on the PE at all.  You might like to read "Secrets for profiting in Bull and Bear Markets" by Stan Weinstein which will explain how to use price action/charts.


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## BottomDraw (21 October 2009)

*Re: Value Buys - add yours*

"Stock is good value because it went up" is just spin and often touted as the worst mistake you can make. I never said your stock is good or not, I never looked at it properly but it is trading above any obvious value and you still provided no explanation for why that would inspire any detailed research.


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## prawn_86 (21 October 2009)

*Re: Value Buys - add yours*

Ok i have re-opened this thread.

*This is not a thread to debate TA vs FA.*

This thread is for fundamentalists to discuss stocks they consider value. _Each stock mentioned must contain the PE ratio_, as requested by the OP. Other figures and reasoning would also help to provide a logical argument

Any posts not on topic or within the rules will be removed and infracted.


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## Julia (22 October 2009)

*Re: Value Buys - add yours*



BottomDraw said:


> "Stock is good value because it went up" is just spin and often touted as the worst mistake you can make.



Really?   Just spin when it makes you money?  Why?
And "touted as the worst mistake you can make"?   By whom, and again, why?
Perhaps you could provide a link to this authority who deems a rising SP spin?

How is it a mistake to buy into a strong uptrend and stick with it until it changes?

Why is this not getting best value for your invested dollars?


> I never said your stock is good or not, I never looked at it properly but it is trading above any obvious value



Is it really?   It's the market that determines what it sees as 'value',
not just some set of figures and a low PE.

If you wish to restrict the discussion to fundamentals of stocks, rather than "value", then the thread should be renamed, so that those of us who see value as a rising share price will not waste our time offering such a suggestion.


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## Rainmaker2000 (22 October 2009)

The practice of buying cause something is going up and selling just cause the price is going down has got nothing to do with investing

It is what star trader, George Soros calls 'reflexivity'.........a philosophy he attributes much of his trading success too

Only George acknowledges the practice to be just trading and openly concedes it has very little to do with 'investing' or value


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## Julia (22 October 2009)

I see that since I last posted the thread has been renamed *Fundamental Value Buys.
*
I will happily withdraw and leave you to your very specific interpretation of what constitutes value.  Good luck.


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## ROE (22 October 2009)

PE is pretty bad way to judge if a company is worth buying or offer good value..
actually PE is the last thing you should look  it's a quick and dirty look but
this look can be dead deceiving.

I buy many companies that trades at high PE and
continue trade at high or higher PE after stock gone through the roof ..

I'm not talking spec mining stocks..these are solid Money cow companies
that keep increase stagering profit each year 

here are some see if you can spot why they are the best and you can buy them
at the right price not because of the PE ratio 

REH COH CSL NVT DMP

I'm not saying you jump in and buy now but when the price is right for you
I dont know what that is for you guys because everyone look at a business differently and comes up with a different price.


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## BottomDraw (22 October 2009)

Why so much fail. It is not rocket science, list the PE's and why you think it is cheap fundamentally.


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## prawn_86 (22 October 2009)

BottomDraw said:


> Why so much fail. It is not rocket science, list the PE's and why you think it is cheap fundamentally.




Exactly.

The OP has asked for PE's and fundamental reasons for 'value'. Perhaps he uses PE's as a starting point and investigates further.

*Its not that hard people*


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## awg (22 October 2009)

ROE said:


> PE is pretty bad way to judge if a company is worth buying or offer good value..
> actually PE is the last thing you should look  it's a quick and dirty look but
> this look can be dead deceiving.
> 
> ...




I will have a stab at your methodology, as I have recently been reviewing my own with a view to a long term core of value stocks.

Your signature gives the first clue.

1) High ROE
2) high return on capital
3) retain a high % of earnings
4) these figures should be over a reasonably long time if possible
5) any dividend preferably high % franked * ( note, I am in pension super phase, so I getting franking credits fully refunded)

most of the above stocks seem to meet the majority of these criteria 

This narrows the search universe of stocks for the core of the portfolio.

I dont dismiss charts as a timing indicator to indicate buy or sell.

I also look at stocks that dont meet all these criteria, as you are most unlikely to get a 10 bagger in the short term.

Last purchase using the above criteria: CXP

present PE = 13.97
ROI since purchased +20%
XAO since purchased +6% 

feedback from yourself ROE especially, or others, very welcome


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## ROE (22 October 2009)

awg said:


> I will have a stab at your methodology, as I have recently been reviewing my own with a view to a long term core of value stocks.
> 
> Your signature gives the first clue.
> 
> ...




Many ways to skin a cat but those who understand Warren Language tend to skin the cat better 

I got about 10 criteria after I understand the business...

if you work out 10 criteria including some of those mentioned

and apply these criteria to all the stocks you want to buy...

you be suprise not many companies made the grade ... buying is so easy when the price is right cos you dont have many to chose from

the one that dont made the grade, they may gain 100% here and there due to speculation but long term they probably go to corporate grave yard 

you get rid of all the rubbish by a very simple elimination process.

It's not an idiot proof techniques but it's pretty good, you probably end up with a dud stock here and there due to laziness but the other will reward you far far more return than the dud stocks..

you easily outperform the market and the so called expert fund mangers by a mile.... you get lot of of capital growth and dividend growth you retire very rich on dividend income 

I aint reaching retirement age, still in my prime and stock dividend fund my life style  now and well into my retirement.

you should listen carefully to Warren Buffett speech and his annual report letter to shareholders  try to deciper what he's trying to tell you..he provides the best advices money can buy and it's FREE.... once you understand Warren Language you straight away know a good company from a dud.

you should be patient and have a long term view and not tempted to trade because it's gone up 30% or cut your lost because it gone down 50% since you bought them.....maybe thinking of top it up rather cut your loss 
rememeber company that made the 10 criteria grade RARELY or never go bankrupt so why not buy more when they are cheap.

I havent trade a stock for 12 months but I bought 8 times, some top up of existing one cos I get more for less, maybe I lie I may have sold one or two but I rarely sell on a regular basis and it's not my thing to buy and sell all the time..

some stocks now sitting at 100% gain not one but a few,  since last year but still not tempted to trade.
cos it's still a good company and that 100% gain could be 400% gain in the future or more.. and as long as the dividend and earning grow with the stock, no reason to sell..

Only sell when you beleive it truely over value and you can find better value in another stock else sit back and eat frank dividend nothing better than that.....

and be true to yourself, dont be affaird to buy big when other jumpship if you believed you done your home work and you know it better than Reg Kermode for Cabcharge and Graham Turner for Flight Centre. (disclosure I own both stocks)

this will yield you crazy return when good company dump at bankruptcy price 

That is how I view fundamental investing, there are more to it than just PE.
PE may get you some cheap stocks but Patient, independent thinker and buy wonderful company at the right price is the formular you need to build wealth.

and Warren is Absolutely right when he said

"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ."


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## BottomDraw (23 October 2009)

That's great and all, but nobody here is claiming anything is magic about PE or any other statistic. So you are sort of talking to your own assumptions and it is not even very coherent.

Interesting quote although, I think Warren is playing semantics because I believe someone with 130 IQ is going to outperform someone with an IQ of 115 on average. You don't need to be a genius but 130 is fairly smart.


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## jayinoz (23 October 2009)

Ozymandias said:


> Despite the market lifting off its lows there is still a lot of cheap stocks out there. What value buys are you looking at now, and what is the P/E?
> 
> Spark Infrastructure - SKI - 4.61
> Forge Group - FGE - 6.71
> ...




YES- I have been monitoring these exact same value based trades in one of my stock watch lists plus a few others. Please add the following to look over for the VERY FEW value based trades left as the market has been rising. I have not included the stocks that are not absolutely impaired with debt like BBP, Centro, etc. 

There is usually always a reason why these shares are currently unloved. My view is that some Directors are clearly not good communicators and this appears very suspicious to us shareholders. For those poor Directors\Management we must make a major discount due to their lack of communication and discloser. Whether due to laziness, lack of ability or other reasons we must always discount 'fair value' for poor Management.

Others recommended:

Recommended as strong buys from various value based brokers...

GRR   P/E= 2.38    Grange Resources Limited
NBS   P/E= 2.52    Nexbis Limited
SRL   P/E= 3.73    Straits Resources Limited
GCG  P/E= 4.44    Greencap Limited
MIG   P/E= 4.60    Macquarie Infrastructure Group

I must add with NBS that the P/E has trailed down below 3 in the last few days. As I posted on the NBS thread the main issue with this company is the NBS CFO's lack of discloser in relation to it's current cash position.

Something definately smells with this stock. Maybe to the advantage of those whom are quick. The CFO answered a query from ASX in relation to a large price drop and stated the following on the 2nd of Oct 2009 (Have a look a the last point listed- admits to non discloser of cash position then same Director buys up a large stake on the day of the drop that he created). 


Australian Stock Exchange
20 Bridge Street
SYDNEY, NSW 2000
By Email
RE: PRICE QUERY
We refer to your inquiry in relation to a decrease in the Company’s share price high of $0.46 on Wednesday, 30 September 2009 to a low of $0.335 today and an increase in volume of trading in the securities over the same period.
1. The company is not aware of any information concerning it, that has not been announced and which, if known, may reasonably be regarded as an explanation for recent trading in the Company’s securities.
2. Not applicable
3. Although the Company has made no specific enquires to ascertain the reasons for today’s price change, there may be several reasons for the change:
• The Company released its statutory accounts to the market today and there may have been some expectations from shareholders that the split of revenue received by country for the Company would have been higher in Malaysia than that of its revenue in China. The ramp up on the Malaysian project has been slower than expected but the Company was able to offset this through its Chinese contracts;
• The statutory accounts also showed an amortisation charge of $3.77 million for a three month period. Some shareholders may consider an annualised figure of $15 million to be higher than expected although this is a non-cash expense; and
• The market may have been expecting a further update on the current cash position of the business, of which the Company did not provide in addition to the statutory accounts. The Company made an announcement of the first receipt of cash for the sale of its Nexcode product on 15 June 2009 and the Company stated at that time it would not be providing cash updates on a regular basis in the future. The Company is maintaining this position.
Nexbis Limited ABN: 81 071 275 253


The above points to a non discloser due to one of the following;

1) Management cannot be bothered...and\or
2) Directors can buy at a discount in the short term...and\or
3) They are hiding defaults impairments...and\or
4) Who knows???

As the Directors have made major purchases on-market I am gathering that their cash position will prove to be VERY strong. And they will release this information to the market when they are good and ready. Arrogance and non discloser is not a vitue in relation to a publically listed company. I am hoping ASX will deal swiftly with non discloser practises of this company very soon.


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## BottomDraw (23 October 2009)

Yeah, I remember reading that and scratching my head. I don't think it is a reporting non-disclosure though, just that they are not going to announce every time they receive a payment from someone for something.

Also, management is not necessarily bad for just being quiet, sometimes no news is good news and sometimes they have private or large competitors they are hiding things from as much as possible. There are plenty of mining and oil stocks that need to announce every few weeks to keep peoples interest ticking past the normal three week yawn, but not all stocks play this game.


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## tonza (23 October 2009)

I would like to add my 2 cents on the term "value" and why it is important for investors to broaden their understanding of the concept. Every fundamental, long-term investor reads a book or two about this god-like figure known as Warren Buffett and takes away two lessons: invest in great companies and buy them at cheap prices. Brilliant advice. But...

The mistake most investors make after reading these books is that a cheap price is indicated by a low PE ratio (that is, current P/E ratio) which, in a lot of cases, can be a correct indication but, a lot of the time, you miss out on the truly great companies.

Exceptional companies are the ones that GROW earnings year in year out at an impressive rate. Unfortunately, these companies trade at high current P/E's so we automatically throw them in the overvalued basket...

With the benefit of hindsight, Lets look at the historical earnings and price/earnings ratios of JB Hi Fi.

Price at end of 06 FY: $5.08
EPS (06): $0.245 ..... PE Ratio: 20.73

OMG OVERVALUED!.....Wrong.

Value investing should not be about the price relative to earnings it should be about the price relative to earnings GROWTH.

JB Hi Fi 2007 EPS: $0.381 .... That's an earnings growth of 55.5%. So, in 2006 it was trading on a forward PE of 13.3x.

JB Hi Fi 2008 EPS: $0.607 ... In 2006 JBH was trading on a two year forward PE of 8.36x ... now that's VALUE.

If the value of a business is the present value of its future cash flows I would have gladly bought JBH at $5.08 in 2006 with a PE of 20.73 because it had some SERIOUS cash flows coming in the future.

The point of my story is to stop looking at low current PE companies and get cracking on the invention of a crystal ball. 

No, but seriously, there is great value to be found in high PE stocks. Don't just assume a high PE has factored in all future growth because a lot of the time it hasn't. Yes, it is near impossible to accurately predict future cash flows but sometimes all you need is the conviction that the company is operating in a high growth market or has an exceptional business model that will yield high growth, you could even look at historical growth rates and hope that they extrapolate further or just simply have a punt, after all, we are just gamblers in this game.


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## Knobby22 (23 October 2009)

Well put tonza.

Let's look at a real time case.

CSL.
History of 20% growth returns over a long time frame. 
Present PE ratio of 18.
Next years PE ratio is expected to be 15. 

Isn't it ridicoulusly cheap? Maybe, maybe not. 
Some say that growth is going to slow as the CEO takeover in the USA was blocked.
Some say the rise of the $A will constrain earnings as much is in foreign currencies.
Others say they are cheap because of all the drug development happening and excellent management.

The skill in fundamental investing is being right. Which one is it?


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## tonza (23 October 2009)

Yeah, Warren Buffett has me speaking as if it's all so easy too. I don't think I have ever invested in a stock and been 100% certain of my forecast. I don't imagine that even after a lifetime of investing I ever will be. I personally list all the good and all the bad things about a company's prospects and if I am convinced that the good could possibly outweigh the bad then, all other aspects being satisfactory, I will give it a go. But the most important thing I think about when doing this pros/cons analysis is that I try to make assumptions and form my opinions in the same manner the overall investing population will when they are analyzing the stock. 

I have had success with the PEG ratio for filtering prospective investments. The PEG ratio is PE/Growth (usually average growth). It gives an idea of what is fair value for a given PE. A value of 1 indicates that you are paying a fair value for the rate of growth that the company has historically displayed and a value of less than 1 indicates that you may be getting some extra bang for your buck.

There are some high caliber companies that currently trade with a PEG of less than 1:

- CommBank: 0.97
- Perpetual: 0.90
- CSL: 0.89
- Harvey Norman: 0.81
- The Reject Shop: 0.72
- JB: 0.7

to name just a few. But once again a PEG ratio is merely an educated guess based on historical performance and can't predict the future.


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## BottomDraw (23 October 2009)

Nobody is in disagreement about PE, "PE means cheap not value" is what everyone is saying including me, you are all just playing a semantics game with the word value. For it to have value the OP asked for it must be cheap and good.

My idea of a value stock is one that is well under priced with good growth potential, no real debt problem, positive cash flow. I also won't touch what I don't understand.

You guys are pointing at stock you think are fairly priced with good growth potential. Fair enough, list the PE's and say why.

There is a difference. If you start by looking a low PE, you can then do some very tedious weeding to find a very few stocks that tick all the boxes, this is what the OP asked for. It is tedious weeding, because to do it properly you have to read years of announcements and look at years of data, constantly comparing this with that... and then are you going to tell everyone... well if you already have it and it went up a bit you might.

I think the problem is that not many people are going to point at good value stocks, why would you, they are just going to buy them and point at other historical retrospective cash cows they like. Lets look at JB cow, I mean in 2006 I bought all my stuff at JB, but I have not bought anything since. Currently first home buyers are probably maxing out some credit cards on TV's and couches, but maybe even that will all come to an end soon, but if 'everyone' thinks they know the same future then it changes... the government will step in (to help people buy more Chinese goods), so it is like a perpetual hmmmmm, until they dance the wrong way too many times and whole thing actually does collapse.


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## Bill M (24 October 2009)

ROE said:


> Many ways to skin a cat but those who understand Warren Language tend to skin the cat better
> 
> I got about 10 criteria after I understand the business...
> 
> ...




This is one of the best posts I have read on this forum for a very long time. One day ROE you will be a very rich man, well done and good luck to you.


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## jayinoz (24 October 2009)

awg said:


> Your signature gives the first clue.
> 
> 1) High ROE
> 2) high return on capital
> ...




What is the 10 criteria that some have been talking about. I cannot find it in this thread... I gather these are 5 of the 10 that value investors look for. 

I think that some of the criteria would change depending on your personal circumstances. As some would look for high franked dividend income whilst others want growth. In a perfect world you have both.

In terms of many not liking a low PE as a guide. I think a forward projected PE is more important. Current PE is a good place to start. Yet some companies with a PE of over 20 now will have a PE under 5 if targets are meet.

It does take a crystal ball, as who knows what commodities will do, world economy, what risks management are taking, etc. 

Buffett seems to have done incredibly well by not listening to what the market saids and sticking to his own fundamental analysis. In his biography his was a stock brokerage outsider for a long time before getting to the status of a guru. Now with every investment he makes he has a million people follow him. So he is now a nice premium for a company to have him as an investor on their books. Going into detail analysis of the company and management of the companies he invests in.

Anyway what is the 10 criteria of a good company.

1) High ROE (Return on Equity)
2) High ROC (Return on capital)
3) Retain high % on earnings
4) Reasonably long time frame for analysis
5) High % growth on dividend payments (That counts out 95% companies)

How about passionate Management or founder, low potential (projected) forward PE, etc. Many are hard to predict without inside information and a crystal ball. All we can do is try to increase our chances of outperforming the market. It is amazing to me that near 50% of supposed Expert fund managers do not outperform the market.  

What is the 10 criteria? So I can apply the proposed criteria to my current portfolio. Thanks


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## tonza (24 October 2009)

I like where this is heading. How about we all pitch in to create a list of desirable attributes in a company and then look for companies that fit the criteria and discuss whether and why there is value there. (Value: Trading at a discount to intrinsic value).

My contributions to the list:

- Appropriate levels of debt.
- High FREE cash flow.
- Buffett's economic moat concept. High barriers to entry, etc.


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## nathanblack (24 October 2009)

some of the "fundamental value" buys are about to go bankrupt.  Because the earnings part of the equation is from previous year, and the price is current.

As the sp falls, so does the PE. It really is a very rough determinent of "value".

goodluck all


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## Wysiwyg (24 October 2009)

Bill M said:


> This is one of the best posts I have read on this forum for a very long time. One day ROE you will be a very rich man, well done and good luck to you.



 Yes I enjoyed reading that too and it made me think back to when the markets capitulated recently. When most were fearful, while watching their investment on paper disappearing, our man on the ground with his head screwed on the right way was topping up his quality portfolio. Excellent strategy, alot of nerve and only a hint of smugness.  from me too.


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## jayinoz (27 October 2009)

tonza said:


> I like where this is heading. How about we all pitch in to create a list of desirable attributes in a company and then look for companies that fit the criteria and discuss whether and why there is value there. (Value: Trading at a discount to intrinsic value).
> 
> My contributions to the list:
> 
> ...




I guess we should add in the 4 key priciples from Buffet for value investing. Now we simply need to invest in those companies that meet our criteria. Not so easy to track down these companies.

BUFFETT’S INVESTMENT PRINCIPLES
1. Is the business simple and understandable? In other words,
is it within your circle of competence? There’s little point in
buying shares in a company if you cannot see where the
profit comes from.
2. Does the company have a sustainable competitive advantage?
Characteristics such as a strong brand name or low costs
can give a business a ‘moat’, which tends to protect it from
competition.
3. Is management competent and trustworthy? Highly capable
managers who treat shareholders as owners can make all
the difference.
4. Is the price acceptable? Buy the shares only when there is a
sufficient margin of safety between the price and intrinsic
value, but understand that high quality businesses are rarely
available at bargain prices. Paying up for quality is often a
good idea.


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## tonza (29 October 2009)

With another sell-off underway there may be some fundamental value opportunities re-emerging. Here is one possible pick:

*NRW Holdings (NWH):* Western Australian based provider of services to the resources sector. The Company provides civil contracting services including rail formation, bulk earthworks, mine development, road and tunnel construction and a range of contract mining services. Blue chip clients among others include Rio Tinto, BHP Billiton and Fortescue Metals Group.

The company has been sold off quite a bit in recent days opening up what I believe to be an excellent entry point for long-term investors.

Current Share Price: $1.51
Market Cap: $394 million

*Some ratios at a glance:*

- Current PE: 9.84 [Given managements revenue guidance they a probably trading at a 2010 forward PE of roughly 8.5ish - ball park figure]
- Price/Book: 2.77
- PEG: 0.6
- P/S: 0.75
- ROE: 26.1%
- ROC: 26%



*Revenue & Earnings Growth:*

2007 Revenue: $277.6m | EPS: 8.00 cents
2008 Revenue: $471.2m | EPS: 13.4 cents
2009 Revenue: $509.6m | EPS: 14.9 cents
2010 Revenue: Management guidance issued for a 20% growth in revenue. 

*Cash Flow:*

The company has done an excellent job at tightening their cash flow management in the midst of the financial crisis. 

FY2009 Cash Flows From Operations: $88.1m
FY2009 Maintenance CAPEX: $6.2m
FREE CASH FLOW: $81.9m

*Debt:*

Net debt of $40.2 million. Reduced by 58% on 2008 levels.

*Dividends:*

Cut dividends in 2009 from 8.23 cents per share to 2.00 cents per share. If the old dividend policy is resumed at 8 cents per share this represents a dividend yield of approximately 5.3%.

One of my favourite aspects of NRW is that they have enough work on their books to ride out the rest of the GFC with positive profit growth.


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## alter1217 (30 October 2009)

QBE P/E: 11.66

Little to no debt, high dividend yield, blue chip company, lots of cash to buy stuff with, high profit margin(?).

Of course, as a defensive stock its share price isn't about to double; but I believe its good value nonetheless.


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## skc (30 October 2009)

tonza said:


> With another sell-off underway there may be some fundamental value opportunities re-emerging. Here is one possible pick:
> 
> *NRW Holdings (NWH):* Western Australian based provider of services to the resources sector. The Company provides civil contracting services including rail formation, bulk earthworks, mine development, road and tunnel construction and a range of contract mining services. Blue chip clients among others include Rio Tinto, BHP Billiton and Fortescue Metals Group.
> 
> ...




I found that with contractors one of the best times to buy is when they stuff something up... which they inevitably will at some stage. The market gets nasty and mark them down severely as if they will stuff _everything_ up from now into the future. What actually will happen then is better risk control are put in place and things get better.

The 2 examples were LEI on the Southern Cross station in Melb and Hilton Hotel in Sydney back in 2004, and Multiplex with Wembley stadium in 2007 (?)


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## ricee007 (14 November 2009)

Interesting thread;

Few comments;



> QBE P/E: 11.66



Seriously considering this for my first margin loan purchase.

In theory though, as AUD rises, Qbe goes down. I think AUD will continue to rise. *E**rgo, I think QBE will however between 21 and 23.50 for a while still *(current, 22.5). Long-term. Wow, what an opportunity (Y). Short-term... theres no reason this couldn't fall 10%.

NRW sounds tempting. Low dividend yield; but, considering the high growth, that is too be expected and hoped for. Having said that... perhaps it has slightly too high FCF? Hm, I don't know enough about it to judge though...

18c EPS for a $1.50 company is quite nifty. (CBF checking current price)... perhaps I'll look into this more in the coming week.


As to my suggestions, note, I hold these, but....
1.
GNSPA Paying 5% ABOVE BBSW. I don't see GNS (Gunns; Pulp Mill) collapsing anytime soon? So, I think the interest stream is relatively stable.. yet they are trading at $75. I expect conversion to $100 in Oct 2010. So, I hope for 33% capital gain in a year; let alone 12% running yield of interest payments between now and then. 12% interest is higher than my aim of 10%... so, I don't mind if these don't convert for a few years (though, they are an expensive form of finance, so I doubt I'll be that lucky). Conversion April 2010 is also a possibility.... 33% in 5 months?

2.
MXUPA. Good chance of conversion April 2010; currently $73.25... MXUPA has climbed up from $17, where it was hilariously undervalued... I don't see Mutliplex as particularly risky, especially as they are backed by Brookfield Asset Management.... (Think BBI)....

3.
Finally, HRR is more fairly valued now a days... but, up until recently was valued at cash+holdings in ASX listed entities... despite having no debt, and a J/V partner for a very, very large nickel project. Having followed this company for 18 months, I'm happy there is PLENTY of long-term upside at current prices.... but, not quite sure that these fit the bill as the best value stock on the ASX since a re-rating from 12c to 20c to 32c.

As to P/E (just incase someone gets snappy ).... MXUPA and GNSPA, not relevant as they aren't reliant on P/E, being interest bearing securities. HRR irrelevant as it isn't producing anything, and it's earnings are negative.


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## Tysonboss1 (30 November 2009)

MDT

MDT is my current value pick, It's operating on a PE of less than 1.5.

Current price is 10c and core earnings are close to 8c, It was heavily sold due to fears that it was going to face trouble as it's debt matured.

The stock currently has it's dividends suspended as it funnels all free cash to clear debt, it has an interest cover times of over 2 so I think lenders will generally extend loan terms however they will want priciple payments.

So as far as I can see,

MDT has,

- Net assets of over 30c per share, which makes it's price of 10c a bargin.

- No dividend, which means all cash is being used to rapidly clear debt which will significantly increase earnings per share as the months roll on.

- And will eventually return to paying dividiends which could be close to the current share price, which will lead to a large capital gain some time in the future.


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## condog (16 December 2009)

COU is my value pick...

It has a current yield of approx 7% while continueing with share buy backs of approx 10% of equity. At the same time it is managing to acquire from its free cash flow and some scrip 14 accounting businesses which it is going to float in 2010 once it acquires 20 businesses...

From that acquisition and IPO it should recieve significant value and ongoing income growth, which is certainly not reflected in the current figures.....

Long term ROE around 70%+

Completely over looked at moment as most people dont know of its buybacks and acquisitions from current figures.


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