Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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Industrial stocks are finding life much tougher than miners as the high dollar and subdued consumer demand take their toll on earnings. Roger Montgomery of Montgomery Investment Management told ABC reporter Andrew Robertson what impact he thinks this will have on retail brands including Oroton and JB Hi-Fi. Read the article.
If you had $100,000 to invest in the stock market, betting the farm on one hot tip could turn your $100,000 to $5 million, but its more likely to wipe you out. An option is to slowly, carefully build a portfolio that, over time is almost certain to beat the market. First recognise the best companies. We call these A1 businesses. If you invest in extraordinary businesses at prices less than they’re worth, you are on your way. Roger Montgomery shares his investing philosophy. Read Roger’s article.
You have never made a profit in the stock market until you have sold. Despite this, many investors focus solely on what shares to buy and what price should be paid. But what about when to sell? Roger Montgomery says that you will eventually lose money, irrespective of the price you paid, if you continue to hold shares in poor performing businesses. At his recent ASX Investor Hour in Melbourne, Roger explained four of his five reasons for selling shares – even those businesses that achieve his top A1 Quality Rating. Listen to the podcast.
I never dreamed a simple little question about the title of a video series would have sparked almost 300 comments. Thank you!
Your suggestions have been entertaining, insightful, and in some cases, ingenious. It has been wonderful to meet so many new Value.able Graduates, and also those of you who have observed from afar (for far too long!).
Here are some of our favourites…
Montyvision, Mike
Video.able, Ben
Montcommentary, Emily
The Value.able Low.Down, Sean
Cooking with Roger, Chris L
Value.Cast, Tim P
Report.Able (Peter
Roger Direct (Matthew R
Roger’s Montgom-o-logue, Robert F
Value.Blast, Rob
Rogernomics, Tony
RMTV, Tim
Value.Bytes, SapporoSteve
Roger’s 2 Cents, Anthony
Value.View, Craig
Value.vision, Jonesy
Value.able report, Orlando
Report.Able, Rod
Value.judgment, Mike
Invaluable insights, Lloyd
InCompany, MarkH
Vis.able, Grover
The Value.able View, Ken F
Talking Cents, Bruno
Video.ables, Nolan
Crunch Time, Brian A
Value.able Vision, Chris L
The Value.able Report, Ian
View from the Mont, Stuart
Value.Log, David
The Montgomery ReTort, Kim
Cents.Ability, Stephen
So without any further ado, the winner is… Value.able TV.
Mark came very close with Value.TV, however it was the final suggestion from Greg (and reassurance from Brad 17) that we have selected as the winner. Greg – I’ll personally sign you First Edition copy of Value.able when I return from Melbourne tomorrow afternoon.
Tune in later this week (maybe early next week) for Episode 2.
If you are yet to join the Graduate Class, click here to order your copy of Value.able immediately. Once you have 1. read Value.able and 2. changed some part of the way you think about the stock market, my team and I will be delighted to officially welcome you as a Graduate of the Class of 2011 (and invite you to become a founding member of our soon-to-be-released next-generation A1 service).
Posted by Roger Montgomery and his A1 team, fund managers and creators of the next-generation A1 service for stock market investors, 29 July 2011.
In case you’ve missed it, Australia’s leading retailers have been putting up a brave fight against the evil spectres of online shopping and a record high savings rate. Forecasts have been slashed and investors have deserted the sector in droves. But weak retail conditions won’t last forever, making some stocks look like big buys. Read Roger’s article at www.eurkeareport.com.au.
Last week, the US stockmarket had its biggest one day selloff since the global financial crisis. Roger Montgomery reveals to Ross Greenwood why this is the time that he looks for extraordinary businesses trading at discounts to their intrinsic value. Listen to the interview.
We did something new today. Rather than write a second blog post, I thought I’d record one.
We haven’t settled on a title for these next-generation posts just yet. What’s your suggestion? The most creative will receive a personally dedicated First Edition copy of Value.able, so put your thinking caps on. Click on the comments button to leave your suggestion. Comments are now closed. Roger’s decision is pending.
Back to the video… Looking at the numbers, Wesfarmers and Woolworths both appear to be doing a good job. But what will these businesses look like in 5, 10 or 20 years time?
With the sales growth gap between our big two supermarkets closing, what does the future hold? And come September, how will the board of WES counter-attack WOW’s entrance to the hardware-warehouse market?
Whilst the stock market is focused on reporting season and Coles’ apparent eroding of Woolworth’s market share, I’ll continue to focus on quality and value. If investing was all about market share, we’d all rush out and buy Qantas. But that wouldn’t be a sensible, or indeed Value.able, decision, would it?
Can’t watch the video on your iPhone or iPad? Visit youtube.com/rogerjmontgomery.
If you are yet to join the Graduate Class, click here to order your copy of Value.able immediately. Once you have 1. read Value.able and 2. changed some part of the way you think about the stock market, my team and I will be delighted to officially welcome you as a Graduate of the Class of 2011 (and invite you to become a founding member of our soon-to-be-released next-generation A1 service).
Posted by Roger Montgomery and his A1 team, fund managers and creators of the next-generation A1 service for stock market investors, 29 July 2011.
With markets falling on fears that political brinkmanship in the US may result in an embarrassing default on the country’s extraordinary debt obligations (not to mention a reputationally damaging event), I wondered whether we could dig anything up with a more-than-slightly different approach to finding value.
As you would know from reading Value.able, I am not a fan of the Price to Earnings Ratio. Nothing has changed on that front. Nevertheless, value may just be in the eye of the beholder and not only is the P/E Ratio common in literature about investing and in market commentary, it is, whether rightly or wrongly, in wide use.
Indeed, if you are like many Baby Boomers now on the cusp of selling your business, you will be spending a great deal of time in negotiations and assisting in due diligence to arrive at a simple multiple of earnings.
The humble P/E Ratio may be misused, misunderstood and relied on far too heavily, but popular it remains.
One version of the earnings multiple that is adopted for comparison purposes by private equity buyers is the enterprise model. The enterprise model takes the market value of the equity (market cap) and debt, less cash, and divides the whole lot by the EBITDA (earnings before interest tax depreciation and amortisation). Of course, if you have a company with high operating margins but lots of property, plant and equipment (PP&E) to maintain, you may find the results a little optimistic.
Simply take a standard price to earnings approach, but subtract the cash the company has in the bank.
If you were to buy a business outright, you may take into account the cash the company has in its bank accounts. After buying the business you may be able to access this cash and withdraw it to lower the purchase price. Alternatively, if you are selling a business, in an IPO for example, you may be just as keen to take the cash out before selling it to maximise the return to you and reduce the return available to otherwise anonymous share market investors (this latter strategy is very popular).
The arithmetic result of taking out the cash is a lower P/E multiple. And that is what I thought you may be interested to discuss.
Are there any companies listed in Australia that are trading on very low multiples of earnings once their cash is taken into consideration? The broad based market declines have ensured there are indeed a few.
Step 1
My search began by opening our next-generation A1 service (Value.able Graduates – your exclusive invitation to pre-register is not far away). I applied a filter to discover those companies whose shares were trading at a P/E-less-cash ratio of less than 6 times. From the more than 2000 companies reviewed, there are 18 such companies that meet the criteria today. Keeping in mind some businesses have cash on their balance sheet that would NOT be accessible to a buyer (legislated, regulation or simply working capital needs), here are the eighteen:
Step 2
Next, I retained only those companies that have a current estimated forecast increase in intrinsic value of 10% or more. This filter reduced the field to just 11 companies, removing ASX, OZL, CGS, CFE, BTA, PBP AND MOC. Here are the eleven:
Step 3
Finally, I removed companies whose previous year’s ROE was less than 15%. I also removed any companies with a C1-C5 Quality Score. Low ROE stocks removed were; CLQ, CLH, SVW AND STS and C-rated companies removed were; SFH AND PEM. That left just five companies. Here they are:
And there you have it, companies trading at enterprise multiples that may be attractive to a buyer who could potentially use the cash on the balance sheet to reduce their purchase price.
Amazing, incredible simple. No manual calculations required (ever again).
Remember, this exercise did not incorporate any of the traditional Value.able investing considerations we usually discuss at the Insights Blog… safety margin, intrinsic value.
For the record, only two of the listed businesses look cheap on the Value.able score today. With reporting season about to begin in ernest, keep in mind the results and cash balances of these companies will all change.
You must do your own research into their prospects and remember to seek and take personal professional advice.
Very soon, finding extraordinary A1 companies offering large safety margins will become simple and even fun. Our next-generation A1 service that my team and I have been tirelessly working on will inspire your investing and re-energise your portfolio.
Value.able Graduates – stay tuned. Your exclusive invitation to pre-register will arrive in your inbox very soon. If you are yet to join the Graduate Class, click here to order your copy of Value.able immediately. Once you have 1. read Value.able and 2. changed some part of the way you think about the stock market, my team and I will be delighted to officially welcome you as a Graduate of the Class of 2011 (and invite you to become a founding member of our soon-to-be-released next-generation A1 service).
Back to the program… this reporting season, who do you think will surprise with better than expected earnings?
Who do you think will struggle?
And what stocks are looking cheap to you right now?
Posted by Roger Montgomery and his A1 team, fund managers and creators of the next-generation A1 service for stock market investors, 29 July 2011.
Businesses that achieve Roger Montgomery’s A1 grade generally have good cash flow and bright prospects. In this appearance with Peter Switzer on the Sky Business Channel, Roger reveals which small-cap, biotech company has achieved his top A1 Montgomery Quality Rating (MQR). Watch the interview.
It’s never a dull moment for shareholders in Leighton, but what’s it really worth? Roger Montgomery runs his famous Value.able ruler LEI to measure the true value of this fading star. Read Roger’s article at www.eurekareport.com.au.
