Value Investing - Finding safety in a dangerous investment environment and building a track record of Alpha.

I've written much about markets and investing.   

First off, tech is overvalued and STILL IS!  My thoughts here are still relevant despite the NASDAQ 100 being down ~35%.

Second off, I built an algorithm for finding good and relatively "safer" investments here and here. 

I've been using this algorithm to find quality investments with a margin of safety for a few years.   My process, admittedly, is not 100% automated, nor should it be.  My algorithm presents a valuation-based ranking of 3000 of the world's equities in the Russell 3000.  Then I use that ranking to feed manual analysis to pick what might be mispriced and what I am personally interested in investing in.  

So ok,  the point of this blog post is to share a few stocks with which I am investing a significant amount of my own capital into with the hope that these picks outperform the broader market.  I will provide the pick and a small amount of information about my rationale for buying them.  

First and foremost, and as previously stated,  I am avoiding many stocks which may have some "short-term" anomalies in their valuation due to macro factors, one-time earnings boost, etc.  Some of my analysis is subjective, and this is not investment advice.  Undertake investment at your own risk.  Any investment is subject to the risk of loss, and maybe total loss.  Bear that in mind.  

One of my top picks as of today is The Mosaic Company, MOS.  Mosaic is a mining company that happens to be focused on fertilizer for the production of food. That is something I can get behind! Next year's earnings are expected to be about $9.29 per share.   The stock price today is $47.45.   That is an earnings yield of nearly 20%.  WOW!   Now you won't get paid that in a dividend, at last check that is at about 1.71%, but that free cash flow is nothing short of amazing.  Concerns about the global food supply, even in recession, should keep Mosaic's stock price healthy! Further, I just read that Mosaic just sold off a golf course that they put on top of an old mining project.

My second pick is Owens Corning, OC.  Owens Corning is best known as an insulation company among other building materials.  As the world becomes more concerned with the availability of inexpensive energy, what better than a company that helps people and organizations SAVE ENERGY!.  The stock price today is $87.41.  Their next year's earnings are expected to be about $10.54.  That is a 12% earnings yield, and it is down on housing related issues, but 12% is nothing to shake a stick at.  Their current dividend yield is 2.40%, but they have plenty of free cash flow to perhaps boost that in the future.  

My third pick is Verizon, VZ.  Verizon is a telecommunications company. Unless a significant number of people go "off-grid", Verizon will likely have strong business fundamentals in a recession. The stock price today is $39.81.  Next year's earnings are expected to be about $5.01.  That is almost a 13% earnings yield and the dividend yield is 6.52%.   My algorithm really spotted it last month when the dividend was closer to 7%, but it jumped up through December and early January for people to catch the dividend on January 9.  I will be buying more if the price goes down through the balance of 2023.

My fourth pick would have been International Paper, but I just noticed a significant update to next year's earnings which has collapsed its ranking.  

My fourth pick is International Paper, IP.  International Paper is a paper products company. My family still works for this company. I initially recommended this company at the depths of 2020 as the world increasingly moved to e-commerce.  It skyrocketed in price, and I became less interested at higher valuations, but it has since collapsed back into the "value" range.  Its current price is $37.21, with an earnings expectation over the next year of 2.98. That leaves it with a 8% earnings yield.  hmm..  See correction above. 

My actual fourth pick now is Polaris Industries, PII. Polaris is mostly a power sports company.   Being from upstate New York and having an amazing Dad who taught me about the outdoors, I have a strong affinity to this company.   I don't want to admit how many Polaris toys I own.  The stock price is also compelling. I've been following this company for years now, and one thing I noticed was when there was an energy recession a few years ago,  Polaris suffered too.  Their vehicles are used in energy exploration quite often.  With the increase in energy exploration being necessary now, maybe that business will grow.  The stock price today is $103.68.  Their EPS expectation for next year is $10.19 which accounts for growth from last year!  That leaves their earnings yield at about 10% with a dividend yield of 2.51%.  They even have electric power sports vehicles now too!  I love this brand.  

My last pick for now is Walgreens Boots Alliance, WBA.  Walgreens probably needs no introduction, they  are in the convenience store business.  They are also in the healthcare business, the consumer staples business, and are insulated somewhat from bad economic times.  Their stock price today is $35.33 and their next year earnings are expected to be $4.84.   That puts their earnings yield at almost 14%.  I forgot to mention this is also one of the DOW30 diamonds.  Their dividend yield is 5.42% so even if we have a recession, you are gonna get paid to wait.  I continue to look for dips to add to my position in 2023.  

The goal of this post is to create a track record so that my algorithm can be tested over time, and even during a recession.   I think that's when my algorithm will shine the most.  Cheers and Happy Investing!

Update (February 9, 2023):

Check out the chart below. I was fooling around with Google Charts and generated the earnings return of around $100 invested in Microsoft vs. Verizon if you had to rely on this year's EPS returns over the next ~30 years assuming no growth in either company.