Portfolio Screen July 2017

This month we’re going to look at two screens. Each screen includes 20 stocks which are spread across US, Australian, Canadian and London exchanges.

First up is Enterprise Value / Earnings before Interest and Tax.

EV/EBIT

Enterprise value, or EV, is made up of market cap, debt, minority interest, preferred shares minus cash. Think of it as the total value of a business, warts and all.

Earnings before interest and tax, or EBIT, is exactly what you’d think it is – the operating profits of a business before interest payments and tax expense. Why not use net profit instead of EBIT? The idea is, the further you go up the income statement, the less manipulated the figures.

For example, net profits can vary drastically among similar companies because of debt levels (affecting interest payments) and taxation factors. Yet if we exclude these two variables we can look at companies across multiple sectors on a more even playing field.

Therefore EV /EBIT is essentially what you expect to receive for purchasing a company. The lower the number, the cheaper the company is in relation to earnings.

Below are the top 20 companies by EV/EBIT.

Liquidation Value

The second screen looks for deep value opportunities. To find them, I’ve screened for stocks with net current assets (current assets less total liabilities) great than their market cap. That means you’d essentially buying stocks at a discount to their most liquid asset.

Therefore if the company is wound up and assets a liquidated and distributed back to owners, you still have the potential to receive more than you initially paid.

The top 20 stocks with these characteristics are as follows:

LV, or liquidation value, is the sum of current assets less total liabilities. MC, is the market cap of each stocks. And MOS represent the margin of safety i.e. the different between LC and MC.

As you can see, GRVY is trading at a 58,041% discount to its net current assets. Amazing right? But many of these stocks do have problems.

Earnings might be eroding. These stocks might have poor management teams. They might even be in dying industry. Hence, why they’re trading at such deep discounts.

But the idea with these screens isn’t so you can just invest in the lot of them. To get much more out of these screens I encourage you to look through the stocks and make up your own view. Are they undervalued? Or are they just value traps.

Looking at more investments each week/month, can expand you’re investing and analytical knowledge and hopeful increase the chance of coming across no brainer investments.