1. Low Price to Earnings
We search out stocks trading at under ten times price to earnings multiples, which reduces the risk of overpaying for a security.
2. Low Cash Flow Multiples
We look for companies trading at under five times price to cash flow. This also reduces the risk of over paying and uncovers many "dirt cheap" equities.
3. Discount to Book/Net Asset
We like to buy stocks trading at a discount to book/net asset value. In many cases, this not only uncovers significantly undervalued stocks but also prime takeover candidates.
4. Hidden Assets
Some examples of hidden assets that can be uncovered after a thorough analysis are tax-loss carry forwards, over-funded pension funds, real estate, potential spin-offs, IPOs, and favorable litigation.
Two types of management could be key in the search for a turnaround candidate: a) Solid, proactive management and b) Poor management, which leaves the company ripe for a proactive acquisition or merger.
6. Products/Services in tune
with 2000 and beyond
This includes expandable, growing markets with good margins. We tend to avoid companies with outdated, shrinking products.
7. Value Catalyst
In order to push up the value of a stock, we look for a significant value creator. Some examples of possible value creators are fresh management with new directions, an important sale or purchase of a meaningful asset, an unsolicited takeover bid, or disgruntled and impatient proactive shareholders who may put pressure on management to make changes or sell.
8. Discounted Valuations
Compared to its Peers
Comparative valuation measures such as price to earnings and cash flow could indicate a take-over by relatively expensive Canadian or foreign competitors looking to expand market presence.
9. Contrary Opinion and
Under-followed by Investment Analysts
With little investor exposure, undervalued stocks are 'pregnant with possibilities', providing very little buying competition when attempting to accumulate the security. Generally an undervalued and under followed security will offer terrific capital gains opportunities.
Stay on track and adhere to strict value discipline of low P/Es, strong cash flows and price targets. Do not get sucked into buying the flavour of the day! Combine patience and persistence to attain superior performance. Patience! Patience! Patience!