Carter Clews (00:00):
Tim yesterday, you gave us some very, very valuable information about momentum stocks that appear every day and trending today. And the daily briefing. You promise to come back today and tell us about what I recall. I guess, valuation stocks, what are they and how can they make us money?
Tim Melvin (00:20):
Okay. Thank you, Carter. Value stock buying is considered stock based on valuation, you’re trying to pay very low multiple of either earnings or asset value. And every day when you come to the briefing and you look that trending today, section is going to have stocks that are trading at very low multiples, learnings, and low multiples of asset value. Now in long run, the market is a weighing machine. It can be very much a pop-up popularity contest in the short run. Valuation helps us win the popularity contest, where we want to win the weighing machine battle too. So for various reasons, companies will get dramatically undervalued compared to their earnings power at various points in the market cycle. Now, for instance, last year we saw a gas prices, which just plummet along with oil. As the pandemic began, and companies would explore for oil and gas got ridiculously cheap.
Tim Melvin (01:17):
So on March 28th, 2020, a company called range resources, the symbols, our RC would have hit our list of stocks being absurdly valued based on how much money they make. The stock was up $2 and 11 cents. Of course, as we know, you know, the fed did what it’s going to do, and the economy started to come back around and gas prices went back higher. And so brain’s resources. In fact, quarter, it went over $15 a share in a relatively short period of time. So in 2019, looking back, we saw Atlas worldwide. Now Atlas worldwide. This is not a super exciting business. Okay. There’s cargo planes and they fly stuff all over the world. Now, what is exciting is that if I order my stuff and it’s covered from Europe, it’ll go on one of their planes and I’ll get my stuff. So that’s pretty good. They also have a good contract with the department of defense.
Tim Melvin (02:12):
So again, it’s boring, but sometimes getting their soldiers from here to there, it’s really important. And that can get quite exciting. So not an exciting business, but it’s one that’s going to grow at a steady pace. They have solid management and the market just didn’t like the business. Back in back in November of 2019, the market was also kind of weak right in that month. So the stock was down trading well below 10 times earnings at a time when the market’s trading for 20 times earnings. So this is a great company at a discounted multiple earnings. So it would have shown up on our, you know, trending now section of the daily briefing report at about $26 a share and less, less than a year later, it traded over $70 a year for, you know, almost, almost triple and in a relatively short period of time.
Tim Melvin (03:05):
So that’s just kind of looking back at a couple of examples and you know, the next one is then this really, you know, I cut my teeth on Ben Graham and Marty Whitman back in the eighties and became a fan of private equity guys and the liquidators, the Courtney old corporate Raiders. I love buying stocks for less than the value of the assets that they have. If you can buy businesses that are going to survive for less than the stuff that they own, it becomes difficult for what I call patient aggressive investors to not make money. My favorite example of this is bank stock, small bank stocks. I’ve been investing in small bank stocks since his essence, the savings and loan crisis back during the Jordan, the first George Bush administration in 1990 small banks bought below book value, tend to get taken over for a lot of different reasons. Now we’ve been publishing picks in that space since 2013. And guys, I’m going to tell you, I can document. We bought a couple of hundred banks. We’ve closed, no losing trades because we bought them for less than the value of the assets that they own. And in fact, quarter, if I go back and look, and I’m not sure I’ve ever bought a small bag for less than book value that had a decent balance sheet that ever lost me money. So
Carter Clews (04:29):
Essentially what you’re saying here is from Tim, Melvin talks, banks are, people can bank on it. Yeah, absolutely. Take it to the bank folks, take it to the bank. Yeah.
Tim Melvin (04:39):
If you look at some other areas and you know, not too long ago, we talked about inflation and how, you know, everybody was trying to buy all these stocks that have already bait made big moves. Well, last year in summer of last year, July 20th, to be exact, nobody wanted to buy us steel because there was no sign of inflation. There was severe fares of, you know, nasty deflation, thanks to the pandemic. Nobody wants to buy steel stock. And yet there was us steel sitting there trading it, I think five times earnings at $7 a share symbol there arrogant is X. It goes all the way up to $25. Now it’s when you know it’s popular. But back then it was unpopular trading at a very low multiple of earnings. That’s when it would have made our cheap earnings list on the, in the daily briefing. Right. They would have seen
Carter Clews (05:29):
That in trending today. And if they want to do that was the time to jump on it. Absolutely excellent.
Tim Melvin (05:36):
Back in the 2018 in April, there was discussion about what was going to happen with the various incentives for solar panels in the United States. And how would that hurt solar companies? So solar stocks sold off sharply. So we had first solar, solar symbol. FSLR back in April of 2018. It’s sitting there it’s trading at like times earnings at $25 a share. Well, we all know what happened. Green energy became the big deal. There’s still plenty of tax incentives for solar. The stock goes from 25 to 75, again, in a relatively short period of time. Then you’ve got some sort over energy at the same time, was it $8 and 64 cents? And shout up to over $50 a share that they were trading just such low multiples of earnings that as long as they didn’t go out of business, the stocks had to go higher. Now give me an example of how powerful this could be buying stocks for less than the value of what they own.
Tim Melvin (06:37):
Think back to April, 2020, right? Everybody was terrified of what was going to happen in the economy. The fed and the Congress were talking about what they were going to do. Nothing was conclusive, and we didn’t know how it would turn out. Italy was locked down at the time, huge parts of the United States. I mean, you could barely get out to get groceries. It was, it was that bad. Nobody thought that home building was going to take off the way that it did. So you had all these home builders that, you know, they’re good businesses. They’re sitting there and they’re trading for about half of the land and cash that they own, that they have on their balance sheets. So they’re trading at ridiculous discounts to the value of stuff that they own. So your Taylor Morrison homes goes from $8 to $30. Once it becomes clear, the Fed’s moves are going to work.
Tim Melvin (07:32):
The economy is going to be good. And oh, by the way, everybody that lived in the city decided that they wanted to have set of town. And we saw a building boom that had drove stock prices a lot higher. So C a M I homes, which specializes in, in a single family, you know, first time buyer homes that goes from $14 and 50 cents to over 70 try point home goes from $8 to $25. And Maritimes goes from $34 car to $116 every day. When you open that section of the briefing trending. Now you’re going to see stocks that I think are, have the, you know, what it takes to survive that are trading at huge discounts to the value of the assets that they own. Now, buying stocks at low valuations of both earnings and asset value, our proven winning strategy in the stock market. And we’re going to give you ideas there every single day when you open the briefing.
Carter Clews (08:32):
So Tim, I, you know, I know everybody watching out there is thinking the same thing. How do you find these things? I mean, we’re not, I don’t hear, I don’t see anything about this. When I look at Yahoo finance or, or seeing BC or Fox business, I don’t see this kind of thing. So I know they have the question. So I just gotta ask
Carter Clews (08:56):
Tim Melvin (08:58):
Years of research in, in doing this, I know where to look. So it doesn’t take me very long, but yeah, the key really is knowing where to look and what to look for. And I know there’s things in every day you’re going to come in, we’ll have your two
Carter Clews (09:13):
Tim Melvin (09:15):
Up there, both 30 and 90 day momentum. And every day there’ll be one stock there that I think is sheep on an earnings basis. And one stock that is trading for less than the values of the assets that are on those are the proven ways to make money. And we’re going to make sure what you see every day, the hot ideas in those areas. All
Carter Clews (09:33):
Right, Tim, you look for those and we will look for you. Thank you, sir. Thank you. We’ll talk tomorrow. Yep.
Subscribe today and receive daily advice right in your inbox, guiding you to a better way to wealth.