New Year bargains?

I did a post in June, some way into a miserable year in the stockmarkets, and wondered in print whether any key stocks could be considered cheap. This post is a follow up post.

What happened next?

My post featured 13 stocks. The thrust of my post was that these stocks’ prices had mostly fallen for a reason – very few of them got a clean (green) sheet suggesting they were ‘cheap’ at the time. And, surprise, those 13 stocks mostly fell after my post. Of the 13, 8 dropped and 5 rose.

I’m interested to note that the four most favoured stocks on my grid were four of the five that went up.

The only clean sheets ‘cheap’ stock last June was Unilever. At that point, it was at £36, which bought you a stock on a P/E of 16, 33% below its peak, with 7% revenue growth and a dividend yield of over 4%. That looked good value, and indeed since then it’s risen 16%.

Back then Hargreaves Lansdown also looked like reasonable value, albeit with an amber flag for only 3% anticipated revenue growth. It too is up, by 11%. MMM had similar scoring, but since then has dropped 8%. I’m not saying my system is foolproof.

And Games Workshop and Domino’s Pizza looked attractive too – albeit I gave them an amber flag for their dividend being (only just) less than 4% . Games Workshop is up 36%, and while Dominos’s has dropped by 3%, that is less than its dividend yield.

One other observation is that revenue projections, where I had them, have all been too optimistic. For UK/US stocks I have brokers’ estimates of the year ahead (courtesy of Stockopedia), and the FY22 estimates in most cases proved too high – which meant my 2 year Rev CAGR figures were unrealistically high too.

Updating the cheapometer

With hindsight I think my amber bar on dividends was too high – dividends of 3.5%+ in the current environment are pretty high.

It would be more sophisticated somehow to incorporate my finding about over-optimistic revenue estimates. Perhaps I should track performance versus estimates. But that is a little bit too sophisticated for this iteration of the cheapometer. So no change there yet.

I’m leaving the rest of the approach unchanged. Most stocks now need updated revenue CAGR figures, which are now (where I have them) based on 2023 forecast vs 2021 actual.

What’s now cheap?

Here on New Year’s Day 2023, let’s have a look at what the cheapometer spits out. This table has share prices updated live, though the cheapometer scores/colours are based on my assessment on 1 Jan 2023 [UPDATED to include reader requests].

I’ve added TSLA to the mix, because there has been so much recent schadenfreude commentary on the slashed stock price.

You’ll see how the Rev 2 year CAGRs are mostly a lot lower. The exception is the newcomer, TSLA – which is expected to more than double its $60bn revenues by 2023. UPDATED: TSLA’s P/E has dropped from absurd levels to a very mortal 23x (partly because its projected 2023 earnings are $18bn! similar to its 2018 revenues), but that’s still too high to be considered Cheap. And based on recent press rumours, demand is dropping amidst the Musk brand being self-tarnished, USD strength and electricity’ price advantage being eroded (in the UK especially).

The other potentially ‘cheap’ stock now is Hargreaves Lansdown. However, caution is required. Strictly speaking, the 2023 CAGR from 2021 is only 2%. However, 2021 looks like a blip (see table below). And the brokers’ projections (those things which are usually too optimistic, remember?) suggest 2024 is going to see £711m revenues. Even based on 2021’s £631m, £711m isn’t too shabby, but up from 2022’s £583m that is a 2 year CAGR of 10.4%. If you believe the brokers, then Hargreaves Lansdown is Cheap. If you don’t, then it might not be.

Revenue actuals / estimates for Hargreaves Lansdown (HL). Source: Stockopedia.

GOOGle is worth an honorary mention. It doesn’t pay dividends, which is a black mark in my system. And it’s P/E is a tiny bit too high for my purist settings, at 17.1. But with 9% compound growth expected, that 17x earnings is certainly nearing the cheap level (compared, for instance, to AMZN which a similar growth expectation but a P/E of 51).

Nothing else on my shortlist appears clearly cheap at the moment. If you want me to run the numbers on a favourite stock of yours, put it in the comments and I’ll update the table.

13 thoughts on “New Year bargains?”

  1. Great post! The only other stocks I’d add is MSFT and DGE.L – nice blue chips with MSFT in particular coming down significantly last 12 months

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  2. Surprised AMZN doesn’t have higher growth with AWS going gangbusters – there was a good listen on the Acquired podcast last year on the history of that business

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    1. AWS is dwarfed by the retail business. It reminds me of China vs USA in the Clinton years. The USD economy was growing, in absolute terms, more than China every year back then (and still might be now, in fact), but as a % China obviously looked much faster.

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  3. I am the poster who originally suggested that you include LSE:GAW in this – really pleased to have seen its share price recovery over the last few months, spurred on by announcing a major film and TV development deal with Amazon Studios (featuring Henry Cavill) a few weeks ago.

    From a long time reader, thanks for your ongoing posts, and wishing you a prosperous and healthy 2023.

    Liked by 1 person

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