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As some investors may believe the market is starting to show "signs of recovery", many of the over 200 institutional firms The Applied Finance Group (AFG) works with can always take advantage of identifying mispriced securities. While some of AFG’s clients might have a specific focus on growth or value, most subscribe to the practice of buying growth at a discount (growth at a reasonable price GARP) and avoiding  “value traps.”

In October 2008 AFG released the study, Then and Now, discussing the low expectations priced into the market "Today many world-class franchises are available at expectations reflecting a very bearish future. Over 150 companies in the S&P 500 (industrials) have negative sales growth expectations embedded into their current market valuations". Following that study AFG issued another study, Analyzing Market Troughs and Rebounds, which pointed out that historical market recoveries have been typically dominated by value stocks.

Whether you are looking for value or more growth oriented securities, we have provided a list of  companies in various asset classes, Large Cap Growth, Large Cap Value, Small Cap Growth, Small Cap Value that are currently on AFG’s Buy and Sell list. If you are a professional investor and would like to view a complete buy and sell list or take a trial of AFG's valuation tools CLICK HERE.

Monthly Buy/Sell list Across the Market
The Applied Finance Group 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 4,500 covered securities. By using AFG’s proprietary criteria, AFG publishes a monthly buy/sell list to provide clients with a refined focused list as a starting point for all investments. This focus List of stocks has outperformed the market on an annual basis by greater than 10% with our buy portfolio and underperformed the market by 10% with our sell portfolio. AFG clients then use Value Expectations to further analyze the expectations embedded in a security’s price (example of expectations embedded in the entire S&P500 over the next 5 years below) and to build out their own model to refine an intrinsic value of a company based on their own expectations.

Select Companies From AFG's Current Monthly Buy-Sell List

(Source: The Applied Finance Group)

Again, If you are a professional investor and would like to view a complete buy and sell list or take a trial of AFG's valuation tools CLICK HERE.

Model Portfolio Buy/Sell Results

To view how AFG defines the Large/Small and Growth/Value universe Click Here.

A brief description of some other of AFG's insights:

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.
AFG's Value Universe - Companies in the AFG universe, which have MV/IC at the bottom 50% of the universe and have EPS estimates.

Recently The Applied Finance Group, LTD provided rankings for CEO Magazine to identify the greatest wealth creating and wealth destroying CEOs in the S&P 500. In the spirit of the upcoming Super Bowl between the Arizona Cardinals and Pittsburgh Steelers, we would like to compare companies in the two respective states to see which state’s CEO is the best wealth creator.

AFG’s scoring methodology is based on its proprietary Economic Margin Framework that sets out to correct accounting distortions and properly understand the market expectations priced into a stock. Most investors understand the concept of Earnings Per Share (EPS) and are happy with the stocks they own that have the ability to grow earnings. AFG’s Economic Margin methodology shows us that earnings are important but are not sufficient to properly measure a company’s operations. AFG looks past earnings to evaluate the profitability and growth (wealth creation) of the entire operation of a business.

Economic Margin (EM) is defined as EM = (Cash Flow - Capital Charge)/ Productive Capital. In simple terms, EM seeks to measure the ability of a company to make money in excess of a risk-adjusted cost of capital. AFG used a multifactor ranking system that combines series of scores to determine a winner in each state. The system evaluates the ability of companies to sustain their historical Economic Margin performance, forecasts expected Economic Margins benchmarked against their peers, and systematically grades management. Based on those criteria, AFG has selected 6 good companies from each state.

However, if you consider investing in any of those companies, please note good companies are not always good investments. There are two components to look at for any investment: the ability of a company to create shareholder value and the attractiveness of its share price in the market. There are times when a well ran business that creates wealth is not a great investment. Investors must understand the embedded expectations they are paying for that performance and determine if those expectations are realistic for the company going forward.

 Arizona Super Bowl Companies with Sales Growth Expectations Implied by Current Trading Price

  Pennsylvania Super Bowl Companies with Sales Growth Expectations Implied by Current Trading Price

*Assuming a constant 5 year median EBITDA margin for each company.

*Assuming a constant 2007 EBITDA margin for FSLR.

Generally speaking, companies with pessimistic VE sales growth relative to their 5 year median sales growth are considered undervalued from AFG’s perspective, such as PETM, RRR,FCX, APOL from Arizona, and ABC, UGI, CEPH, from Pennsylvania.

And the winner is....

Cephalon Inc (CEPH) -CEPH has been a very profitable company in the last three years with very stable economic margins, much like the Pittsburgh Steelers who won the Super Bowl just three years ago. Based on AFG’s forecast, it appears that CEPH is in position to maintain its economic profitability while continuing to grow its assets.

First Solar Inc (FSLR) – FSLR is a solar module designer and manufacturer located in sunny Arizona. Helped by the growing public attention and support to alternative energy, the company has done a nice job of turning their business around from earning below their cost of capital to a high level of profitability.