TEG

When identifying potential torpedoes AFG looks for companies with the least valuation upside compared to their sector peers, below sector median expected Economic Margin change, and a management quality score that reflects a management team following a wealth destroying strategy. These 18 S&P 500 companies from every major AFG defined sector (ex. Financials) are potential torpedoes that could be lurking in your portfolio. These companies all possess characteristics that make for a bad investment opportunity. If you own one of these companies or consider adding one to your portfolio, we suggest taking a closer look as they look the most likely to underperform their sector peers according to criteria that has proven successful at identifying winners and losers in the market.

As the first 100 days of the new administration have come and gone, portfolio managers and analysts are searching through the market to see which stocks, industries, and sectors will gain from new policy and which ones are potential torpedoes in their portfolio. In AFG’s Monthly Market Review we have highlighted some of the focus of the new administration and how it can affect decisions as an investor, and we continue to search through the market in the hope of identifying which companies warrant their performance and which ones look to be unattractive from a valuation standpoint. The companies within the Financial sector have moved for reasons other than valuation, and will not be evaluated from a valuation perspective but it is interesting to see which companies have done the best and worst given the recent market shift.

Below is a comparison of the performance of the market with the last four presidents - we understand that each president walked into a different economic environment, but it is interesting to see how each one faired their first 100 days. The key will be how the market does over the long haul, especially given the significant policy changes and challenges the markets face over the course of the next year.

S&P 500 Reactions to Obama's First 100 Days

Event Key Of Obama's First 100 Days

How Obama's First 100 Days Compare to Last 3 U.S. President's (S&P 500)

S&P 500 Companies With Best/Worst Returns During Obama's First 100 Days

Valuation Attractiveness of Top/Bottom 10 Companies in Obama's First 100 Days (Ex. Financials)

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 look at the YTD returns, valuation attractiveness and sales growth expectations of the two biggest and smallest companies in each sector within the S&P 500 (excluding financials). This link provides some insight into Applied Finance Group’s (AFG’s) valuation techniques. Also compare the expectations for sales growth to what the companies have delivered historically to see which stocks on this list are most likely to meet or exceed those expectations, and thus be more likely to out-perform.

 

 Biggest/Smallest Companies (Mkt Cap) By Sector S&P 500 (excluding financials)

 

*AFG’s Value Expectation allows us to understand the imbedded Sales Growth, EBITDA Margins, and Asset Turnovers 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 turnovers stay at the 5 year median levels.