It’s a scenario value investors dream about: a growing company whose shares are selling at a statistically cheap price. Of course, these types of stocks can be hard to find—and the search for them may lead you straight into a value trap. But just as a stock selling for a low valuation doesn’t always mean a bargain, a richly valued stock doesn’t always mean value investors ought to automatically look elsewhere. The Boyar Value Group recently identified one high multiple stock that may be worth paying up for. Keep reading to find out more.
People like to categorize investors into clearly delineated categories like growth investors and value investors. But in some sense, I’ve always felt like everybody is a value investor. After all, who wants to overpay for a stock? I doubt there are many successful growth investors out there who make a deliberate decision to overpay for a stock. They buy it because they think it’s worth more than what they’re paying for it.
Here at The Boyar Value Group, we’re technically value investors-it’s in our name, after all. In reality, however, we consider ourselves opportunists. When we look for value, we look for stocks that cost considerably less than what a knowledgeable acquirer would pay for the whole business. That means looking for characteristics that might not necessarily show up in traditional valuation metrics-things like network effects, valuable real estate, or underappreciated brand power.
The Limits Of Low Valuations
Screening for value opportunities solely among low-valuation stocks could miss stocks that have realized some of their intrinsic value but still retain a large amount of potential upside. A stock that has advanced significantly from its lows or one that is richly valued shouldn’t necessarily stop you from taking a closer look, provided you believe the business has specific attributes or competitive advantages that will produce long-term growth.
As I’ve written before, there are two crucial steps to avoid value traps: a firm conviction in a company’s potential and a catalyst that will help realize that potential. When it comes to richly priced securities, that conviction is even more important, because the downside risk is much higher. For that reason, it takes more compelling evidence of potential upside to make us comfortable with a high-valuation stock. In particular, we look for things like size of the addressable market, underpenetrated markets, sectors or industries that offer unseized opportunities for market disruption, and significant competitive advantages.
Recent Example: PayPal (PYPL)
In 2017, we profiled PayPal in our 45+ year old research service Asset Analysis Focus, which at the time was trading at 40 times earnings. Despite that valuation, we believed its position was unappreciated for several reasons. First, it offered a much simpler, lower-friction online payment method than the contemporary alternative of entering credit card or bank information with every transaction. Second, it had first-mover advantage and greater scale than its competitors, having established strong network partnerships in the digital space. An investor who dismissed PayPal out of hand because of its valuation in 2016 would have missed out on its share price nearly quadrupling to around $190.
High Potential In A High Valuation: ANGI Homeservices Inc
ANGI Homeservices Inc (NASDAQ:ANGI) is the largest home-improvement site in the digital space today. Selling at more than 300 times earnings, it is also far from a cheap stock. But it is also undergoing a transformation that, if successful, could not only make it a much more profitable company, but could also significantly increase its market share.
Home improvement has traditionally been a referral business, and the marketplace is severely lagging other industries where services like Uber have made frictionless online transactions commonplace. When I spoke recently with ANGI Homeservices CEO Brandon Ridenour on my World According to Boyar Podcast, he suggested a demographic reason for the slow evolution of the home improvement space: homeowners as a group skew older on average than most categories and aren’t digital natives. But that trend is about to change as millennials purchase homes. They are digital natives. They’re also more used to price transparency and dependable service than the home-improvement industry has historically delivered. At the same time, the coronavirus pandemic could drive more urban-dwellers to the suburbs, potentially increasing the number of consumers seeking home-improvement services.
The World According to Boyar Podcast Featuring Special Guest Brandon Ridenour CEO of ANGI Homeservices - The Boyar Value Group
That trend could magnify the company’s already-sizable existing potential. Ridenour estimates ANGI Homeservices's total addressable market at $500 billion, with online penetration still hovering below 10%. The company’s potential first-mover advantage in a market that size could be substantial (they have roughly 40% to 50% of the online market). It’s also currently rolling out a new platform that could further extend its competitive advantage by shifting from a lead-development tool for contractors to a full-fledged service provision platform with fixed-price and on-demand offerings. This move has the potential to reduce the power of competitors such as Google, that continue to rely on the older advertising model. As the platform develops and gains traction among consumers, it could attract more service providers as well, generating a virtuous cycle that further separates ANGI from its competitors.
A More Conservative Alternative
Barry Diller’s holding company, IAC, holds an 85% stake in ANGI Homeservices. So, purchasing IAC may be more attractive for investors interested in tapping into ANGI’s growth opportunity who might balk at the high valuation. IAC’s current equity value is ~$10.4 billion. The value of IAC’s stake in ANGI Homeservices and the cash on its balance sheet is ~$9.2 billion. Investors who purchase shares in IAC also get to invest alongside Barry Diller in other early-stage companies, including digital media company Dotdash and Software-as-a-Service (or SaaS) video tools provider Vimeo, at an implied valuation of $1.2 billion, which I believe could easily be a relative bargain compared to their long-term value.
In either case, no matter how expensive the stock is up front, its true value must factor in its future potential. Low valuation or high, conviction is the key to an opportunistic stock purchase.
The author and/or certain Boyar Asset Management clients own all of the aforementioned stocks either individually or through pooled vehicles the firm manages. For additional important disclosures, please visit: www.lp.boyarvaluegroup.com/disclaimer
Follow us on Twitter @Boyarvalue
Article by Jonathan Boyar via Forbes
The post Value Does Not Have To Mean Cheap: ANGI A Good Example appeared first on ValueWalk.
New Zealand dollar pares losses as RBNZ pauses
RBNZ holds benchmark rate at 5.5% The New Zealand dollar has posted small losses on Wednesday. In Europe, NZD/USD is trading at 0.5901 in Europe, down…
- RBNZ holds benchmark rate at 5.5%
The New Zealand dollar has posted small losses on Wednesday. In Europe, NZD/USD is trading at 0.5901 in Europe, down 0.11%. Earlier, NZD/USD fell as much as 0.50% before paring these losses.
The New Zealand dollar is trying to find its footing in what has been a dismal week. NZD/USD is down 1.6% this week and fell to a one-month low earlier today. Still, the kiwi has shown little reaction to the Reserve Bank of New Zealand’s decision to pause rates for a third time.
The pause in rate hikes was expected and the monetary statement didn’t contain anything new. The statement said that interest rates had cooled economic activity and reduced inflation “as required”, adding that interest rates would need to remain restrictive to ensure that inflation falls back within its 1%-3% target range.
The message from the RBNZ was rather dovish and signalled that the tightening cycle is over. Policy makers don’t want to spell out that rates have peaked, as they would lose credibility if inflation moved higher and the RBNZ was forced to raise rates. The takeaway from the meeting is that the RBNZ appears content to wait for restrictive policy settings to filter through the economy and dampen inflation, which is running at a 6% clip. This stance won’t provide any relief for the struggling New Zealand dollar.
US Treasury yields continue to move higher as the selloff in global bond markets has gained momentum. This has helped boost the US dollar as more attractive yields on Treasury bonds have dampened risk appetite. The yield on 30-year Treasuries touched 5% on Tuesday, its highest level in over a decade.
The Federal Reserve has signalled that it is unlikely to lower rates anytime soon, given the strong US economy. Atlanta Fed President Raphael Bostic said on Tuesday that the Fed should hold rates at elevated levels “for a long time” in order to bring inflation back down to the 2% target. Bostic said he favoured a single rate cut in 2024, late in the year.
- NZD/USD is testing resistance at 0.5917. The next resistance line is 0.5947
- There is support at 0.5888 and 0.5833
A Promising player in the energy revolution
In recent years, the demand for sustainable energy sources has intensified, leading…
The post A Promising player in the energy revolution appeared first…
In recent years, the demand for sustainable energy sources has intensified, leading to a surge in the global lithium market.
As electric vehicles (EVs) gain popularity, lithium-ion batteries have become instrumental in meeting the growing energy storage needs. Argentina Lithium & Energy Corp. (TSXV:LIT) is a Canadian mineral exploration company with a strategic approach and a strong commitment to sustainable practices. This is one company that is well-positioned to capitalize on the rising demand for lithium.The Stellantis investmentIn a significant move that underscores the growing importance of lithium in the automotive industry, the company recently secured a substantial US$90 million investment from Stellantis. This investment not only validates Argentina Lithium’s potential but also highlights the pivotal role lithium plays in the transition to a carbon-neutral future.What makes this investment significant
Stellantis, formed through the merger of Fiat Chrysler Automobiles and Groupe PSA, is one of the world’s largest automotive manufacturers. Their decision to invest such a significant amount in Argentina Lithium & Energy potentially helps secure a future supply of lithium in a rapidly growing market. This investment will not only provide Argentina Lithium with the necessary capital to explore and advance its projects but also highlights the industry’s recognition of Argentina’s lithium potential.Expansion of lithium projectsWith the infusion of funds from Stellantis, Argentina Lithium & Energy can accelerate the advancement of its lithium projects. The company’s projects are all located in the prolific Lithium Triangle region of Argentina, which holds immense promise because of its abundant, and in many cases, high-grade lithium resources. This investment will expedite the exploration process and potentially fast track the path to future lithium project development and production.
Speaking on this investment, Argentina Lithium President and Chief Executive Officer Nikolaos Cacos said in a news release: “We are delighted to have Stellantis as a partner in the exploration and future development of our lithium projects in Argentina. Together, we share a vision to build a sustainable lithium mining operation for the future. We look forward to a strong and successful relationship with Stellantis and we are committed to working towards delivering a sustainable lithium product that will contribute to the electrification of transportation and the protection of our atmosphere.”
Meeting the rising demand for EVsAs the world shifts towards sustainable transportation alternatives, EVs are expected to dominate the automotive sector. Lithium-ion batteries are the preferred power storage component for EVs, making lithium a vital component in the energy revolution. The investment by Stellantis in Argentina Lithium & Energy Corp. can potentially help ensure a stable supply of lithium, enabling the automotive giant to meet the soaring demand for EVs while reducing their carbon footprint.Embracing sustainable practicesThe company recognizes the importance of exploration and mining operations that prioritize environmental sustainability and social responsibility. The company is committed to minimizing its ecological footprint and engaging with local communities to ensure mutual benefits..For your considerationArgentina Lithium & Energy Corp.’s partnership with Stellantis through a US$90 million investment is a testament to its potential as a key player in the global lithium market.
The company’s stock shot up 113 per cent on this news.Argentina Lithium & Energy Corp. stock chart – April to September 2023.
As the demand for lithium continues to surge, the company’s commitment to sustainable practices and strategic projects in Argentina’s lithium-rich regions position it favorably among industry leaders. With this significant investment, Argentina Lithium & Energy Corp. is working to contribute significantly to the advancement of the clean energy transition while offering an appealing investment opportunity for those looking to support the growth of sustainable technologies.
Join the discussion: Find out what everybody’s saying about this stock on the Argentina Lithium & Energy Corp. Bullboard, and check out the rest of Stockhouse’s stock forums and message boards.
This is sponsored content issued on behalf of Argentina Lithium & Energy Corp., please see full disclaimer here.canada
MBA: Mortgage Applications Decreased in Weekly Survey; Purchase Apps Lowest Since 1995
From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
Mortgage applications decreased 6.0 percent from one
week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage
Applications Survey for the we…
Mortgage applications decreased 6.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 29, 2023.Click on graph for larger image.
The Market Composite Index, a measure of mortgage loan application volume, decreased 6.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 6 percent compared with the previous week. The Refinance Index decreased 7 percent from the previous week and was 11 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 22 percent lower than the same week one year ago.
“Mortgage rates continued to move higher last week as markets digested the recent upswing in Treasury yields. Rates for all mortgage products increased, with the 30-year fixed mortgage rate increasing for the fourth consecutive week to 7.53 percent – the highest rate since 2000,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “As a result, mortgage applications ground to a halt, dropping to the lowest level since 1996. The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market. ARM loan applications picked up over the week and the ARM share increased to 8 percent, as some borrowers searched for ways to lower their payments.”
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 7.53 percent from 7.41 percent, with points increasing to 0.80 from 0.71 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The first graph shows the MBA mortgage purchase index.
According to the MBA, purchase activity is down 22% year-over-year unadjusted.
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