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A focus list of buys and sells for our readers to use as a starting point when looking to make changes to portfolio. This list contains attractive and unattractive stocks from every major sector excluding financials. AFG's buy and sell lists have proven through time to provide a significant spread between the buys and sells helping you to identify winners and avoid potential torpedoes.

The Applied Finance Group (AFG) has a disciplined approach for identifying companies that are expected to outperform and underperform the market by using proprietary metrics and measurements that have been tested and proven through time. Because AFG’s research is fundamentally derived, AFG’s quantitative analysis spans across growth and value stocks, all sectors, industries, and market caps with over 20,000 covered securities globally.

When searching for Large-Cap ideas, AFG’s Buy/Sell list is a good starting place as it has proven to create a significant spread in performance between companies that come up on AFG’s buy list and those on the sell list. Further focusing on companies based on AFG’s proprietary screening criteria (Economic Margin, valuation, quality of earnings, and management’s ability to create shareholder wealth) will save investors time in their research process. The result is a target group of stocks that can help you outperform as well as identify potential torpedoes to avoid in your portfolios.

Below is a list of attractive companies in the S&P 500 from each major AFG sector (excluding financials). It serves as a focus list of companies for investors to begin with as they meet AFG’s criteria to be an attractive opportunity. They are more likely to outperform their sector peers and the S&P 500, the benchmark that AFG’s clients most often compare themselves with.

Investment Rank within Sector Ticker Name Sector  Opportunity Valuation Signal EM Change Signal  Attractive Large Caps - S&P 500 (NYSE:FCX) FREEPORT-MCMORAN C & G Basic Material Attractive Attractive Positive (NYSE:BMS)  BEMIS CO INC Basic Material Attractive Attractive Positive (NYSE:WAT)  WATERS CORP Capital Goods Attractive Attractive Positive (NYSE:DO) DIAMOND OFFSHRE DRILLING Capital Goods Attractive Attractive Positive (NYSE:OI) OWENS ILLINOIS INC Consumer Durable Attractive Attractive Positive (NYSE:WHR) WHIRLPOOL CORP Consumer Durable Attractive Attractive Positive (NYSE:LO)  LORILLARD INC Consumer Non Durable Attractive Attractive Positive (NYSE:CL)  COLGATE-PALMOLIVE CO Consumer Non Durable Attractive Attractive Positive (NYSE:KSS) KOHL'S CORP Consumer Services Attractive Attractive Positive (NYSE:WAG)  WALGREEN CO Consumer Services Attractive Attractive Positive (NYSE:NEM) NEWMONT MINING CORP Energy and Extraction Attractive Attractive Positive (NYSE:MUR)  MURPHY OIL CORP Energy and Extraction Attractive Attractive Positive (NYSE:PFE) PFIZER INC Health Attractive Attractive Positive (NYSE:WPI) WATSON PHARMACEUTICALS Health Attractive Attractive Positive (NYSE:VZ) VERIZON COMMUNICATIONS Technology Attractive Attractive Positive (NASDAQ:ORCL)  ORACLE CORP Technology Attractive Attractive Positive (NYSE:UNP)  UNION PACIFIC CORP Transportation Attractive Attractive Positive (NYSE:BNI)  BURLINGTON NTH SANTA FE Transportation Attractive Attractive Positive (NYSE:PEG) PUBLIC SVC ENTPRS GROUP Utilities Attractive Attractive Positive (NYSE:AEP)  AMERICAN ELECTRIC POWER Utilities Attractive Attractive Positive

Source: EconomicMargin.com

AFG's Valuation Metric – Measures the percent to target (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 (modified discounted cash flow model).

Economic Margin - A corporate performance measurement that addresses the gaps in GAAP, eliminating distortions caused by accounting policies to measure what a company is truly earning above or below their cost of capital.

Management Quality – Assesses management’s ability to make wealth creating decisions.

+View our List of Value Expectations Recommended Articles

AFG Recommendation Performance
9/1998 – 5/2009
Annualized Returns

Source: AFGView client databases from 9/1998 – 5/2009
Universe size: 4,000 to 5,500 firms

Investors are always looking for an edge, a way to improve their stock selection process in the hope that it improves their overall performance. Fundamental investors may flirt with the idea of adding a technical overlay to their process while a value investor may take more of a chance on a growth company. No matter what style of investor you are, you want to be sure the process you are implementing makes sense.

Because of the volatility of the market, investors seem to be paying more attention to the technicals of the companies they hold or are considering to buy. While there are several ways technical analysts look at the momentum in the market, ValueExpectations.com will concentrate on the simple, yet widely used 50 and 200 day moving averages relative to a companies current trading price.

We, at The Applied Finance Group (AFG), believe that technicals are relevant, but it is much more important to focus on the fundamentals of a company in determining which securities are over/under valued. We have taken the S&P 500 and focused only on the stocks trading above their 50 and 200 day moving averages (44%) for those investors who pay closer attention to technicals, and provided a list of companies in most of the major economic sectors that we find attractive and some that we find unattractive based on AFG’s investment criteria, which focuses more on valuation attractiveness and expected corporate performance.

However, if you do look at momentum, a variable we would suggest concentrating on is economic momentum. AFG’s economic momentum coupled with valuation give you a tremendous advantage in outperforming!

		AFG	Rank within Sector
Ticker	Name	Investment Opportunity	Valuation Signal	EM Change Signal
Capital Goods - Attractive
(NYSE:RDC)	ROWAN COMPANIES INC	Attractive	Attractive	Positive
(NYSE:DO)	DIAMOND OFFSHRE DRILLING	Attractive	Attractive	Positive
Capital Goods - Unattractive
(NYSE:SWK)	STANLEY WORKS THE	Unattractive	Unattractive	Negative
(NYSE:LEN)	LENNAR CORP CL A	Unattractive	Unattractive	Negative
Consumer Durable - Attractive
(NYSE:OI)	OWENS ILLINOIS INC	Attractive	Neutral	Positive
(NYSE:XRX)	XEROX CORP	Attractive	Attractive	Neutral
Consumer Durable - Unattractive
(NYSE:IGT)	INTERNAT GAME TECHNOLOGY	Unattractive	Unattractive	Negative
(NYSE:HAR)	HARMAN INTERNAT IND INC	Unattractive	Unattractive	Negative
Consumer NonDurable - Attractive
(NYSE:LO)	LORILLARD INC	Attractive	Attractive	Positive
(NYSE:CL)	COLGATE-PALMOLIVE CO	Attractive	Attractive	Positive
Consumer NonDurable - Unattractive
(NYSE:RL)	POLO RALPH LAUREN CORP	Unattractive	Unattractive	Negative
(NYSE:HNZ)	H.J. HEINZ CO	Unattractive	Unattractive	Negative
Consumer Services - Attractive
(NYSE:DRI)	DARDEN RESTAURANTS	Attractive	Attractive	Positive
(NYSE:EFX)	EQUIFAX INC	Attractive	Attractive	Positive
Consumer Services - Unattractive
(NYSE:HOT)	STARWOOD HTLS & RSRTS WW	Unattractive	Unattractive	Negative
(NYSE:CBS)	CBS CORP CL B	Unattractive	Unattractive	Negative
Health - Attractive
(NASDAQ:BIIB)	BIOGEN IDEC INC	Attractive	Attractive	Positive
(NYSE:PFE)	PFIZER INC	Attractive	Attractive	Positive
Health - Unattractive
(NASDAQ:MYL)	MYLAN INC	Unattractive	Unattractive	Negative
(NASDAQ:ISRG)	INTUITIVE SURGICAL INC	Unattractive	Unattractive	Negative
Technology - Attractive
(NASDAQ:SYMC)	SYMANTEC CORP	Attractive	Attractive	Positive
(NYSE:HRS)	HARRIS CORP	Attractive	Attractive	Positive
Technology - Unattractive
(NASDAQ:LLTC)	LINEAR TECHNOLOGY CORP	Unattractive	Unattractive	Negative
(NASDAQ:CIEN)	CIENA CORP	Unattractive	Unattractive	Negative
Utilities - Attractive
(NYSE:PEG)	PUBLIC SVC ENTPRS GROUP	Attractive	Attractive	Positive
(NYSE:D)	DOMINION RESOURCES VA	Attractive	Attractive	Positive
Utilities - Unattractive
(NYSE:NI)	NISOURCE INC	Unattractive	Unattractive	Negative
(NYSE:NU)	NORTHEAST UTILITIES	Unattractive	Unattractive	Negative

 

Sectors without adequate representation were excluded (Financials, Basic Material, Transportation)

Bloomberg provides a score for companies within the S&P 500 based on an average of all analyst ratings from the street. Below is a table highlighting companies with the best analyst ratings, largest increase in rating, highest price targets, and worst analyst ratings and the valuation attractiveness of each of these companies based on The Applied Finance Group’s (AFG) valuation model.

Companies within each of these groups are ranked from most attractive from a valuation perspective to the least attractive. VE.com will actively track the performance of these recommendations and see how they stack up to the analyst recommendations in each group. AFGview.com, AFG’s professional investor website allows you to compare any company using their rating versus the consensus ratings of the sell side. If you are interested in an analysis on a specific company, contact afgsales@afgltd.com.

 

Best/Worst Analyst Rated Companies (Bloomberg)

 

AFG's Valuation Model – Using AFG’s modified discounted cash flow model to measure the intrinsic value of a firm compared to its peers. AFG's Value Score - A score which represents the ranked percent to target (deviation between stock’s current trading price and AFG’s current default target price) or attractiveness (upside) relative to the universe. A Value Score of 100 is the most undervalued and 0 is the most overvalued company in the universe.

Below is a summary of 22 AFG Buy Recommendations from the S&P500 Index. The report highlights the 2 companies from each sector (ex. financials) that have the most attractive value score and are currently rated Buys by The Applied Finance Group, Ltd. (AFG). Factors used to derive a AFG’s recommendation include: Expected change in Economic Margins, Intrinsic Value, and Management Quality.

We also ran a VE analysis and provided the results. The VE analysis of each company is used to identify implied sales growth expectations versus what the company has delivered historically in sales growth over the past 5 years. Measuring the spread between a company’s VE sales growth expectations and what it has historically delivered should give you a good idea of which companies have the best chance of meeting or exceeding those expectations, and thus are more likely to outperform.

 

 Cheapest Companies In The S&P 500 By Sector (ex. Financials)

 

 Click Here, to see results of our portfolio performance using AFG's Buy/Sell criteria

A brief description of AFG's buy criteria variables is below:

• Economic Margin - A corporate performance measurement that addresses the gaps in GAAP, eliminating distortions caused by accounting policies to measure what a company is truly earning above or below their cost of capital.

• Valuation Model – Using AFG’s modified discounted cash flow model to measure the intrinsic value of a firm compared to its peers.

• Management Quality – Assess management’s ability to make wealth creating decisions.

 Applied Finance Group’s (AFG’s) Value Score defined - A score which represents the ranked percent to target (deviation between stock’s current trading price and AFG’s current default target price) or attractiveness (upside) relative to the universe. A Value Score of 100 is the most undervalued and 0 is the most overvalued company in the universe.

VE Sales Growth - AFG’s Value Expectations allows us to understand the Sales Growth, EBITDA Margin, and Asset Turnover a company has to deliver in the future to justify its current trading price. In theory, if the imbedded future performance is very conservative relative to the company’s historical performance, the stock is regarded as undervalued. The VE Sales Growth displays the implied future Sales Growth of the company assuming their EBITDA Margins and Asset Turnovers stay at the 5 year historic median levels.

With the first quarter of 2009 winding down, ValueExpectations.com has compiled a list of the best and worst performing stocks thus far in 2009 (excluding financials). It is not surprising for us to see two companies on the top performer list (S and MYL) that also appeared on our list at the end of January, or three bottom performing companies (ODP, TXT and MTW) still remaining on the bottom performer list over a month and a half later. We published an article in early February highlighting the top and bottom performers for the month of January and posed the question “Is the January Effect effective?”

 

Top 10 S&P 500 Companies (YTD 2009)

 

Bottom 10 S&P 500 Companies (YTD 2009)

 

Our conclusion: Looking at the YTD returns for the companies in our January effect article's top and bottom lists, we notice that there is a huge spread. January’s top performers have earned an average return of 4.66% YTD compared to January’s bottom performers’ average YTD return of -57.15%. This pretty compelling spread suggests that the January effect may be something investors want to pay closer attention to next year and it may even be helpful for the remainder of 2009.

 

 

*AFG’s Value Expectation allows us to understand the imbedded Sales Growth, EBITDA Margins, and Asset Turnover a company has to deliver in the future to justify its current trading price. In theory and in normal circumstances, if the imbedded future performance is very conservative relative to the company’s historical performance, the stock is regarded as undervalued. The table displays the implied future sales growth of companies assuming their EBITDA margins and Asset turnover stay constant at the company's historical 5 year median.