In the month of June, ten new stocks have been added to the Most Attractive list, while three new stocks have joined the Most Dangerous list. The best performing large-cap stock gained 10%, and the best performing small-cap stock saw an increase of 17%. On the other hand, the best performing large-cap short stock fell by 8%, and the best performing small-cap short stock dropped by 26%. The Most Attractive stocks are characterized by high and rising returns on invested capital (ROIC) and low price to economic book value ratios, while the Most Dangerous stocks have misleading earnings and high market valuations.
The featured stock from July’s Most Attractive Stocks Model Portfolio is Ford Motor Company (F). Ford has shown growth in revenue and net operating profit after tax (NOPAT) by 2% and 4% compounded annually since 2013, respectively. The company’s return on invested capital (ROIC) has increased from 9% in 2013 to 12% in the trailing twelve months (TTM). Ford is currently undervalued with a price-to-economic book value (PEBV) ratio of 0.6, indicating that the market expects a significant decline in NOPAT. However, based on historical growth rates, the stock could see a 23% upside if profits continue to grow.
On the other hand, the featured stock from July’s Most Dangerous Stocks Model Portfolio is Cadence Bank (CADE). The company’s NOPAT margin has declined significantly from 24% in 2018 to 3% in the TTM, resulting in a decrease in return on invested capital (ROIC) from 7% to 1%. Cadence Bank’s economic earnings have also fallen, showing true cash flows of the business. Despite these poor fundamentals, the stock is priced for significant profit growth, leading to an overvalued position.
To justify its current price, Cadence Bank must improve its NOPAT margin significantly and grow revenue by 5% compounded annually through 2033. However, these expectations are considered overly optimistic, and even in a best-case scenario, the stock would be worth no more than $17/share today, representing a 42% downside to the current stock price. The analysis also assumes growth without increasing working capital or fixed assets, which may not be realistic.
In conclusion, Ford Motor Company presents an attractive investment opportunity with room for upside based on historical growth rates and current valuation metrics. On the other hand, Cadence Bank is considered a risky investment with overvalued expectations and declining fundamentals. Investors are advised to conduct thorough research and consider the critical details and adjustments made based on Robo-Analyst findings before making any investment decisions. Disclosure: David Trainer, Kyle Guske II, and Hakan Salt receive no compensation for writing about any specific stock, style, or theme.
