Morningstar’s 33 Undervalued Stocks

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33 Undervalued Stocks for Q3 2023, according to Morningstar

Here’s the list of Morningstar’s top underpriced stock picks for the third quarter of 2023.

  1. Albemarle ALB
  2. Berkshire Hathaway BRK.B
  3. Blackstone BX
  4. Citigroup C
  5. Cognizant Technology Solutions CTSH
  6. Conagra Brands CAG
  7. Corteva CTVA
  8. Curaleaf CURLF
  9. Dover DOV
  10. Dow DOW
  11. Duke Energy DUK
  12. Entergy ETR
  13. Federal Realty Investment Trust FRT
  14. Hanesbrands HBI
  15. HF Sinclair DINO
  16. Illumina ILMN
  17. Jacobs Solutions J
  18. Kraft Heinz KHC
  19. Moderna Therapeutics MRNA
  20. NiSource NI
  21. Park Hotels & Resorts PK
  22. Pinterest PINS
  23. Salesforce CRM
  24. SLB SLB
  25. Stericycle SRCL
  26. Teradyne TER
  27. TC Energy TRP
  28. Tyson Foods TSN
  29. VF VFC
  30. Ventas VTR
  31. Verizon Communications VZ
  32. Walt Disney DIS
  33. Zimmer Biomet ZBH

Source:  https://www.morningstar.com/stocks/33-undervalued-stocks-2

Stock picker factors:

  • Stock price is cheap relative to intrinsic value,
  • Company pays investor to wait
  • Company ability to repurchase stock at a reasonable price
  • Stock must be cheaply price (ROE, ROIC, P/E, P/Sales, P/FCF)
  • Buy something at three-time cash flow and five percent dividend yield.

Source:  https://www.morningstar.com/stocks/33-undervalued-stocks-2

The Passing Away of the WWII Generation

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Behind every living person lies a great story waiting to be told. One of life’s greatest tragedies is dying without telling your story. Regrettably, the stories and experiences of many African American WWII veterans are going untold.

The Passing Away of the WWII Generation
Every single day in the calendar year 2023, World War II veterans’ stories and personal experiences are disappearing forever. Yielding to the inevitable aging process and time, the men and women who served, fought, and won the great conflict are now in their mid-90s or older. The youngest veteran is estimated to be 95 years young.
According to US Department of Veterans Affairs statistics, 167,284 of the 16 million Americans who served in World War II were alive in 2022.
The book ‘African American Experience During World War II’ provides the stories and experiences of the 1.6 million African American soldiers, sailors, airmen, and Marines who served and fought during World War II.

China is No Longer Investable

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Investing capital in China is both risky and is wildly unpredictable given the country’s lack of transparency, weak accounting standards, absence of the rule of law, and poor regulatory oversight.

Worse, the fate of the Chinese economy and business environment is almost entirely dependent on the domestic and global aspirations of a single man, Chinese authoritarian President Xi Jinping.

China is not a democracy and does not abide by the rule of law. Chinese Communist government’s sweeping control over the economy puts businesses, especially American-based firms, in a delicate position in trying to avoid the ire of President Xi and the Chinese government.

Hedge fund manager Kyle Bass, founder of Hayman Capital Management and long time critic of Communist China, has long proclaimed, “You have to say, each country run by maybe a despotic authoritarian should be re-reviewed and maybe not invested in.”

Bass cautioned against investing in Chinese stocks. He highlighted the risk of accounting fraud due to a lack of financial audits in China, and the prospect of further regulatory crackdowns on Chinese companies in the U.S. and crackdowns on American companies in China.

References:

  1. https://www.fool.com/investing/2021/07/08/chinese-stocks-are-crashing-buy-the-dip-or-stay-aw/

U.S. Credit Card Debt

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  1. Total U.S. credit card debt reached an all-time high in the first quarter of calendar year 2023, reaching $1.03 trillion, according to data released Tuesday by the Federal Reserve Bank of New York.

Rising credit card debt and auto loan balances helped to drive overall household debt levels up 1%, to $17.06 trillion for the quarter, the report showed. Overall household debt has spiked by $2.9 trillion since the end of 2019, before the pandemic.

Key facts:

  • The average American credit card debt balance is $5,910, as of the third quarter of 2022, according to Experian.
  • Americans have an average credit utilization rate of 28%.
  • Credit card interest rates have reached an average of 20.92%.
  • White Americans have the highest average credit card debt of any racial group at $6,940.
  • Higher earned income corresponds to larger credit card balances, but consumers in the middle income brackets are the most likely to have credit card debt.

References:

  1. https://www.fool.com/the-ascent/research/credit-card-debt-statistics/
  2. https://www.cnn.com/2023/08/08/economy/us-household-credit-card-debt/index.html

Return on Invested Capital (ROIC)

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  • The ROIC is the operating profit divided by the invested capital. It tells us how much money the company can generate with new capital by investing in profitable projects.
  • The ROIC basically explains how much shareholder wealth could be generated in the future and is oftentimes highly correlated with a high P/E.

Return on invested capital, or ROIC, is a valuable financial ratio  A high ROIC rewards companies that are able to produce the most net operating profit with the least amount of invested capital.

The basics of ROIC are very simple: it basically tells us how much profits are generated (financials statement) compared to how much capital is invested in the company (balance sheet), provided as a percentage. If the ROIC is 10%, it tells us that the company is generating $10 of profits with each $100 that it invested in the company.

ROIC is net operating profit minus taxes minus dividends divided by invested capital:

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ROIC is net operating profit minus taxes minus dividends divided by invested capital:

ROIC is a measure of how much cash a company gets back for each dollar it invests in its business.

ROIC is a much better predictor of company performance than either return on assets or return on equity. In ROA and ROE, the key metric is net income. Net income often has nothing to do with the profitability of a company. Significant expenses are not included in net income such as interest income, discontinued operations, minority interest, etc. which can make a company look profitable when it is not. Also, ROA measures how much net income a company generates for each dollar of assets on its balance sheet. The problem with using this metric is that companies can carry a lot of assets that have nothing to do with their operations, so ROA isn’t always an accurate measure of profitability.

ROE has similar limitations as ROA. ROE is a measure of company profit compared to shareholder equity. Although this might seem a reasonable metric, many companies use financial leverage to raise ROE. Companies often increase debt levels to repurchase shares, thereby increasing ROE. Using this financial leverage to affect ROE does not accurately reflect a company’s profitability, returns or long-term prospects.

Companies with higher-than-median ROIC (when viewed in conjunction with their overall capital-expenditure and operating-expenditure strategy) will deliver better returns.

Valuation biasedness is one of the most common investing errors.

Some investors prefer picking a stock which is “undervalued” rather than buying a more expensive stock with strong long-term fundamentals. As a consequence, they oftentimes end up with “value traps” which actually destroy shareholder value over time. One of the reasons for this is that they know how to “value” a company (via multiples etc.), but lack the ability to determine the quality of a company and its potential to drive long-term value for shareholders.

The most important metric will tell you whether you are buying a good company that is able to generate strong future shareholder wealth: the return on invested capital (“ROIC”).

Basically, investors should look for a high (+10%) and consistent ROIC. In the long run, the ROIC can be a leading indicator of what an investor may expect from longer term stock returns.

References:

  1. https://www.thestreet.com/opinion/10-stocks-with-high-return-on-invested-capital-and-why-you-should-care-13279076

September is Healthy Aging Month

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September is Healthy Aging Month

According to the Centers for Disease Control and Prevention (CDC), Adults aged 65 and older need:

  • At least 150 minutes of exercise a week (for example, 30 minutes a day, 5 days a week) of moderate-intensity activity such as brisk walking. Or they need 75 minutes a week of vigorous-intensity activity such as hiking, jogging, or running.
  • At least 2 days a week of activities that strengthen muscles.
  • Activities to improve balance, such as standing on one foot about 3 times a week.

If chronic conditions affect your ability to meet these recommendations, be as physically active as your abilities and conditions allow.

Examples of Aerobic Physical Activity
According to the CDC, aerobic physical activity or “cardio” gets you breathing harder and your heart beating faster. From pushing a lawn mower, taking a dance class, walking or biking to the store – these types of activities and more count. As long as you’re doing aerobic physical activities at a moderate- or vigorous intensity, they count towards meeting the aerobic guideline. Even something as simple as walking is a great way to get the aerobic activity you need, as long as it’s at a moderately intense pace.

Intensity is how hard your body is working during physical activity. Try a few of these aerobic activities:

  • Walking or hiking
  • Some forms of yoga
  • Some yard work, such as raking and pushing a lawn mower
  • Bicycle riding (stationary or outdoors)
  • Water aerobics

“Higher intensity exercise had greater improvements for depression and anxiety, while longer durations had smaller effects when compared to short and mid-duration bursts.

“We also found that all types of physical activity and exercise were beneficial, including aerobic exercise such as walking, resistance training, Pilates, and yoga

https://tinyurl.com/mt2j67jy

African American Experience during WWII

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African American Experience During World War II

The book provides a historical perspective of the 1.2 million African American service members’ experiences on the unit and personal level serving in a segregated U.S. military and for an American society that denied them equal opportunity and basic civil rights. African Americans served in every military branch (Army, Army Air Corps, Navy and Marine Corps).

Besides serving in segregated units, they were assigned menial tasks, provided inferior training and resources, denied opportunities to serve in combat units, and faced racism despite fighting for liberty, justice and freedom abroad while being denied those platitudes at home. Basically, they battled for liberty and freedom on two fronts? home and abroad.

 

Lessons from the book: From Failure to Success: Everyday Habits and Exercises to Build Mental Resilience and Turn Failures Into Successes

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Top 10 Lessons from the book: From Failure to Success: Everyday Habits and Exercises to Build Mental Resilience and Turn Failures Into successes By Martin Meadows

1. If you face a difficult problem and you tell yourself, “I don’t know how to deal with it,” you’ll think of reasons why you can’t do it — and not potential solutions. Your brain acts on your instructions, and it’s the words you use that steer your thinking process. If instead you tell yourself, “Okay, let’s find a way to figure it out,” you’ll think of potential solutions and probably solve the problem. Same problem, different words, different outcome. As powerful as our brains are, words can fool them — and you can use this phenomenon to your benefit.

2. Dwelling on your failure reinforces it and makes you less effective at dealing with future failures. Turning the failure into a lesson will help you to reinforce a positive coping mechanism.

3. The next time you fail, resist the temptation to let anger, frustration, discouragement or self-guilt make you give up. Give yourself time to process the negative emotions, and then make a list of the lessons you’ve learned from not reaching your desired outcome. This will help you develop a positive mechanism for coping with failure. When you transform a failure into a list of lessons, you’ll empower yourself by thinking in terms of possible ideas for improvement instead of poisoning yourself with negativity.

4. Whenever you find yourself angry at a situation you can’t change, remind yourself that it’s not up to you. Accepting that things are beyond your control will give you a sense of peace and enable you to move on. Peace of mind comes from focusing on what you can control instead of wasting your energy on things you can’t change. the only things you can always control are your own thoughts and subsequent beliefs, attitudes, and actions.

5. If you repeatedly fail with the same goal, it’s possible you set unrealistic expectations and are stuck in the false hope loop. To avoid failing due to unrealistic expectations, make sure to carefully research the feasibility of your goals. Does an average entrepreneur build a six-figure business in six months?

6. If you’ve already failed a couple of times and want to try again, consider completely changing your approach, rather than trying the same approach again and expecting different results. Perhaps the approach you’ve taken isn’t founded on healthy principles or doesn’t work in your unique situation. When you close your mind to alternative approaches, you can get stuck in the failure loop forever.

7. When setting a new goal and deadline, remind yourself that ultimately even if you don’t achieve something by your self-imposed deadline, you’re still farther ahead.

8. Sacrifice is necessary. Sacrificing less-important goals will give you more power to work on the most crucial objectives. Prioritize big life improvements like changing your diet, getting a better job, starting a business, or finding a life partner, over less significant objectives.

9. Embrace boredom. It’s exciting to set new goals or follow new strategies, but if you prioritize excitement over effectiveness, you’ll only lose focus and possibly fail. If something works, stick to it.

10. Practice defensive pessimism by imagining the worst and preparing for it. The next time you find yourself preparing for a situation that produces anxiety, come up with a list of everything that can go wrong. Then, address every item one by one by coming up with a list of possible solutions and implement them to reduce the risk of the setback happening.

11. If you don’t believe you deserve success, you’ll sabotage your efforts. If you limit your growth because you’re afraid of hurting others, remind yourself that becoming a better person gives you more resources to help them.

12. If you don’t recognize your strengths, make a list of your motivations, strengths, relationships, and other assets that can help you achieve your goal. Then think of past situations that you solved, thanks to these resources.

13. The best way to build long-term resolve is to develop a long-term passion that consistently motivates you to persist in spite of challenges. When performed over the long term, it will build up your reserves of mental strength while you’re enjoying yourself.

14. You must believe that if you persist at it, you will get better at it. You won’t stick to anything in the long term if you doubt your abilities to improve.

15. Find a way to introduce a big change in your life with little commitment and investment on your part. If it works well, make it a permanent change.

 

https://wa.me/2348087816044