FAST

Barron's is a well-respected, widely-publicized weekly newspaper that covers U.S. financial information, market developments, and relevant statistics. Each issue provides a wrap-up of the previous week's market activity and news reports, as well as an informative outlook on the week to come. An interesting piece within Barron’s that garners special attention each week is their interviews of well-known fund managers (who often manage over 1 Billion in A.U.M.), which gives their best stock picks. According to a 1994 study by Gary Banesh and Jeffrey Clark from The Journal of Financial and Strategic Decisions (The Value of Indirect Investment Advice: Stock Recommendations in Barron’s), stock picks from Barron’s weekly Money Manger Interview outperform the market. The success of the picks from Barron’s is likely due to the fact that each fund manager provides one pick, which is usually a holding in their fund, and the success of that pick could bring their fund new investors. Therefore, there is plenty of incentive for these managers to get their best picks in front of the public’s eyes via Barron’s.

The Applied Finance Group’s (AFG) Market Forecast Project is a monthly poll of professional investor’s designed to provide insights on how investor’s currently view the market and economy. This poll started out as an AFG client only poll at AFG’s annual research summit, but due to its popularity and successful predictions it has been expanded to all professional investors who register and participate and will be done monthly. The benefit of participation is being the first to receive the results before they are released on our blog or to anyone else. Earlier this month as a result of one of the poll’s questions that the Tech sector was the most attractive sector to invest in over the next 12 months, we released a list of Tech stocks that we like and a few that looked overvalued as well. In last month’s survey the Basic Material sector was the second most attractive place to invest due to the fact that many investors see an economic recovery ahead that may directly benefit many of the companies within the Materials sector when home building and new construction begin to correct and recover. Provided below is a list of Basic Material stocks that we find attractive and unattractive based on AFG’s default buy/sell criteria, valuation attractiveness and expected change in Economic Margins (AFG’s measure of corporate performance/profitability). Companies expected to improve Economic Margins greater than sector peers have proven through back-tests to be the most likely companies to outperform. Companies with attractive default valuations according to AFG have also consistently outperformed companies AFG views as overvalued.

 

Source (The Applied Finance Group)

*Valuation & EM Change are Ranks within their sector

AFG's Buy/Sell Criteria - factors in Economic Margin, Management Quality, and AFG's Valuation Metric. In order to determine Management Quality, AFG scores management on their growth decisions in accordance with the company’s ability to either create or destroy wealth. AFG's Valuation Metric measures a company's Percent to Target (the deviation between a stock's current trading price and its AFG current default target price). To derive the intrinsic value of a firm, AFG uses its proprietary Valuation Model.

If you are a professional investor and would like to be a part of our next survey click here.

High EM Buys & Sells

 Next week we will be discussing the use of an Economic Margin as a complete valuation system.