In the dynamic landscape of the stock market, investors often seek innovative strategies to identify promising opportunities.  With the S&P 500 reaching new heights, finding undervalued stocks requires a creative approach. Evercore strategists have turned their attention to the Russell 1000 index, unveiling a list of stocks that, despite recent setbacks, boast robust earnings potential that the market may have overlooked. Identifying Potential Winners To make it onto this select list, stocks needed to meet specific criteria: Performance Metrics Must have been down at least 10% from the beginning of 2022, aligning with the market's peak. Analysts forecast a 2024 EPS growth of 7% or greater, reflecting the long-term historical average on the Russell 1000. Consistent Earnings Companies must have beaten bottom-line estimates in at least seven of the past eight quarters. Valuation and Market Size Shares should not have forward price/earnings multiples exceeding 50 times. Market valu...

We talked about the Price-Earning (PE) ratio in our previous post. We discussed its merits and demerits. In order to get a clearer picture of the company going forward we need to also look at company’s earnings growth. This anamoly is addressed by Price-Earning-Growth (PEG) ratio. PEG ratio is defined as the ratio of PE to the earnings growth of the stock. Earnings growth is typically taken for a five or ten year period. It tells us whether the PE is fair compared to its earnings growth. A PEG ratio of 1 represents that the stock is fairly valued. Value less than 1 represents undervaluation and value more than 1 represents overvaluation. Its formula is PEG RATIO = Price Earnings / Annual EPS Growth What does PEG ratio tell you? PEG ratio is used to ascertain the true relative value of the stock. Just like low PE ratios lower PEG means the stock is undervalued .Moreover it is an improvement over PE ratios because it takes into account the earnings growth also. A PEG ratio of 1 i...

Price-Earning (PE) ratio is the ratio of market price of the stock compared to the earnings per share. It shows the sum of money you are ready to pay for each dollar worth of earnings of the company. Its formula is PE = Market Value per Share / Earning per Share (EPS) DIFFERENT VERSIONS OF PE RATIOS Trailing PE When Earnings per share is taken from the last 12 months results , the resulting PE is called trailing PE. Trailing PE captures what is already done and happened. Its most popular because of its objectivity. Forward PE Forward PE uses the estimated future earnings of the company instead of the trailing figures. It is handful in comparing present earnings and future earnings .It is helpful in predicting what earnings look like in absence of one off charges and accounting adjustments. Personally I am not a great fan of Forward PE because it can be fraught with folly. The earnings estimate can go wrong for so many reasons and the whole analysis can get wrong. Moreover wi...

Book Value is a valuation metric used to value an enterprise. It is the value of all the assets (current and non current) arrived at by deducting all the current and non current liabilities, depreciation, amortization and also the intangible assets (patents, goodwill etc.). Calculating the book value gives you the approximate value of the company if it were to get liquidated without considering the earnings of the enterprise. WHAT KIND OF COMPANIES CAN BE VALUED USING BOOK VALUE The valuation metric of book value is helpful in analyzing certain type of companies.This metric is often ignored and only gets a passing reference compared to other valuation metrics so we are going to discuss it in detail. Book value holds all the more significance when valuing Asset rich companies, Banks and Financial Companies. An example of asset rich company would be mining companies .These companies own mines and the ores available within the mine but it takes years before al...

In the last article we talked about the book value. In this article we are going to talk about profitability ratios of ROE and ROCE. ROE or Return on Equity is calculated as Net Income/Average Shareholders Equity. ROE ratio helps in understanding the company’s earnings performance. It is a measure of Company’s profitability. ROE ratio has to be compared with peers, industry etc to get a better overall perspective. Consistent ROE greater than 15% is considered good. Like with all other valuation metrics this one too suffers from the drawback if used in isolation. High debt on the books of the company and aggressive share buy backs can lower the equity base. A lower denominator means higher ROE .This is where analysis can go wrong. To make more sense of ROE we will have to study the Dupont Analysis. THE DUPONT FORMULA TO CALCULATE ROE As pointed out earlier there are various ways which can be used by the management to increase ROE without any corresponding increase in...