Update on Value Investing Portfolio

I went through my value investing choices in my “fun money” account, and reviewed them for performance. If you remember, this account is around 5% of my total invested assets (the majority of them are in straight index funds, allocated over stocks, bonds & REITs). With this account, I sought to experiment with investing in value stocks, based on the writings of Graham, Buffet and other value stock disciples. I wrote two articles on that back in 2017.

The general tenets of the analysis, I broke down into several categories of analysis for each stock:

  1. Market value greater than $2 Billion (Strength)
  2. Current ratio (current assets/current liabilities) of 2-1 or greater
  3. Positive earnings in each of the last 10 years
  4. Paid dividend at least 20 years, and raised over last 20 years
  5. Increased earnings per share by at least 1/3 over 10 years
  6. P/E of 15 or less
  7. Price-to-book of 2.5 or less
  8. Return on Equity of 15% or more, and growing

Not every stock can have all of these, but they should have the majority (and be trending in the right direction). Most stock analysis tools (like Morningstar) will let you put in these feature and determine those stocks that meet or are close to these values.

In the account, I had three stocks that, when I did the analysis, matched somewhat close to these values: Gilead Science (GILD), CSS Industries (CSS) and Tahoe Resources (TAHO).

In addition, Graham had a value equation (updated by recent value disciples) that helped to determine real value for the stocks. Using that, I was able to determine that all three of these were undervalued, based on current earnings, growth potential, etc. In it, you took the company’s earnings without dividends, multiplied it by 2*a company growth rate (I chose 6%) plus 8.5%, and then multiplied that times 4.4 divided by the corporate bond yield.

When looking at my three value stocks, I had the following results:

  • GILD: 6 out of 8 in the categories. Est value of $101.02/share vs current price of $75.42 (+@$25.60)
  • CSS: 6 out of 8 in the categories. Est value of $22.10/share vs share price of $27.86 (-$5.76)
  • TAHO: 3 out of 8 categories (they fell off a lot this year). Est value of $4.81 vs current price of $4.49 (+$0.32)

Based on this, I chose to sell my CSS and TAHO at the beginning of the year. I also chose to sell the REITs I had in the account (I was originally setting it up like my dividend paying account, and only in 2017 did I chose to do value investing in it). This would give me a significant amount of money that I planned to put into three value stock plays.

I did the analysis of the eight categories and came up with 2 other stocks that interested me:

  • SBS (Companhia de Saneamento Basico do Estado de Sao Paulo SABESP): 5 out of 8 in the categories. Est value of $19.69/share vs. current price of $10.43 (89% upside)
  • BBGI (Beasley Broadcast Group Inc.): 5 out of 8 in the categories. Est. value of $29.01/share vs. price of $12.80 (127% upside)
  • I also chose to double my investment in GILD, as it still had significant upside.

I was struck by the lack of stocks that met many of the categories, due to price. It appears the stock run-up has cut into the potential for getting good value stocks.

So evenly split, I have about $12K in each of these value stocks. I’ll let folks now how they do throughout the year.

 

Mr. 39 Months

 

 

 

 

7 thoughts on “Update on Value Investing Portfolio”

  1. As a starting level investor, Stock Market, to me, was a lot more difficult to understand. Without a good guide, I was not willing to dive into it. Your posts are more informative. Any new investor can get knowledge how to chose investing in value stocks. Thanks a lot.

    1. Thanks. I hope it helped.

      Note that I still keep the lion’s share of my investments in regular index funds, which seems to be the consensus for FIRE folks.

  2. I think investing money in the stock market is risky. If you do not have sufficient knowledge about stock market it is very foolish to invest money because every day stock market fluctuate. So your article teaches lessons to everyone. Thanks for this type of informative article. Love to read it,Waiting For More new Update and I Already Read your Recent Post its Great Thanks

  3. As we know stock market is very volatile market. If you do not take risk you do not get benefits. first thing is that you have to think which is growing sector so that you put your money. Do not put your money in one sector, put your money in different sector. So you will balance your portfolio. So the article is very good and lots of information in that. That is really nice to hear. thank you for the update and good luck.

    1. Thanks. I’ll keep everyone informed as I go along.

      Don’t forget to check some of the links out to the right – lots of good investing info for folks at other sites.

  4. Thank you for sharing excellent informations. Your web-site is
    very cool. I am impressed by the details that you have on this web site. Great survey, I’m sure you’re getting a great response.

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