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Bellard's top 20 cash flow stocks for 2008

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February 26, 2008 – Comments (8)

I have finally finished my top 100 cash flow stock list. I will show the top 20 here. As I discussed in my first post, After this list is screened, compiled, researched, etc. the real work has just started. Each equity on this list must be researched in detail. These are some of the steps I take:

1) Read the past 2 years quarterly results and 10-Q's.
2) Listen to all the investor presentations, and conference calls, verifying the above guidance for the the above earnings.
3) Research the sector.
4) Google news - all articles in the past year for company name.

Once again I will warn investors of catching a falling knife. Many of my top 20 DCF stocks, landed there mainly due to HUGE stock price declines. In my experience, these unloved stocks create the best opportunities of above average appreciation for the value long term investor.

My list if fairly diverse, but overweight energy stocks(6 of the 20). There is no order in the top 20, as I use 5 different cash flow metrics - so depending on the individual metric the ordering is different. I will list the stock, its original price for inclusion in my list, there current stock price, and my current DCF valuation.

Stock         Original price         Current price         DCF value
----------------------------------------------------------------------------------------------------
1)  ETFC             2.5                   4.75                      16
2)  ZINC              13                    16.6                      35
3)  ACAS            29                    36                         85
4)  PGH              16                    18.5                      26
5)  CHK               37                    45                        60
6)  IPSU              18                    19                        40
7)  MEOH            23                    26                        80
8)  BVF               12.5                 13.5                      65
9)  RFMD              3                     3.25                     11
10) E                   60                    68                       155
11) VPHM              9                     9                         24
12) TNE                20                   25                         60
13) AE                  23                   25                         44
14) EME               20                   24                         50
15) TEX                 52                   66                       170
16) MTW               40                   41                       110
17) PDS                18                   22                         50
18) PDC                13                   13.5                      24
19) SPIL                 8                      8                        22
20) RS                  46                    55                       110             

8 Comments – Post Your Own

#1) On February 26, 2008 at 12:34 PM, WillSurfForFood (70.36) wrote:

The problem with DCF analysis is that you need to make assumptions on earning growth rates that gets increasingly unclear as you go forward. Often the guidance from the company can be a bit optimistic: didn't Countrywide say they expected to return to profitibility by the end of 2007? I'm guessing your analysis of ETFC didn't take into account that if their loan portfolio continues to slide it could be worth close to 0.

 http://seekingalpha.com/article/65006-read-this-before-buying-e-trade    

 Disclaimer: I don't have a position in ETFC in CAPS or real life

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#2) On February 26, 2008 at 12:51 PM, bellard (99.12) wrote:

" ETFC didn't take into account that if their loan portfolio continues to slide it could be worth close to 0."

Fooddude;

The most difficult modeling for DCF is the future CF growth rates. I like firms with a long history of cash flow. ETFC has a long enough history of 5+ years of data. I bought ETFC at about 2.5- 3.5.

I watched the investor presentation last Q, and was impressed. ETFC brokerage business is doing fine. My DCF model has the brokerage worth over 20 a share. I am very comfortable with ETFC HELO's of 12B - better quality than WFC. Most of the worst stuff is already sold a huge loss. Going forward I valued the entire banking side at -5 a share. Leaving the current value of ETFC above 15. 

 

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#3) On February 26, 2008 at 1:02 PM, Gtrinvestor (99.75) wrote:

Nice analysis... I'll take a closer look @ each of these.

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#4) On February 26, 2008 at 1:54 PM, themattgrdt (99.85) wrote:

Hey man! That is an awesome list. I'm going to have to look into some of those companies myself. To answer your question, I have a lot of active picks since I sometimes use CAPS as sort of a watchlist. If a cursory look at a company gives me the warm fuzzies, I'll give it a thumbs up. If it drops 20%, I'll probably drill down to see if there's some value to be had.

I also rate stuff without any due diligence whatsoever, for example I read a quote from the CEO of BBSI that I thought was sweet so out comes the green thumb. A lot of the pump and dump stocks I'll short for some easy points as well.

By the way, you're doing awesome! You're gonna crack the 99s soon. I'm glad to be on the same side as a lot of your picks.

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#5) On February 26, 2008 at 2:37 PM, bellard (99.12) wrote:

Yo Matt;

Thanks for the CAPS info. I noticed you have done really well on your penny stocks. How do you find these? I may look at red tagging some weak ones, Or did you red tag before they became penny stocks? 

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#6) On February 26, 2008 at 5:58 PM, ricoy5 (26.31) wrote:

Hey Bellard,

 Great list.  You mention 5 different CF metrics...  do you have those available to share?  I have been tweaking around with one that ValuePicksOnly linked to a few weeks ago, with the plan to add more *thinking* to my CAPS world, and much more quantitative analysis to my RW portfolios.

Any tools you like (and can share) would be much appreciated.

 

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#7) On February 26, 2008 at 10:22 PM, bellard (99.12) wrote:

Ricoy5;

Valuepicks has some very good info. I really focus on cash flow. Cash don't lie! My 5 cash flow metrics are:

1) cash flow from op's

2) free cash flow

3) clean cash flow from op's(NI + DEPR + NI ADJ)

4) clean free cash flow(#3 - capex)

5) Maintenance clean cash flow(#3 - just the capex required to run current business) 

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#8) On February 28, 2008 at 11:29 AM, themattgrdt (99.85) wrote:

There are a few CAPS players that are really good at finding pump and dump penny stocks. TMFBent and EverydayInvestor are a couple. I have them on my favorites, and I'll check their picks from time to time. The Citron Research website (http://www.stocklemon.com/) is a great resource too.

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