I Love Bear Markets – Look at All the Value It Has Brought Us! Part 1

Introduction

Although most investors hate bearish stock market activity, value investors – like yours truly -relish them.  Moreover, bearish market activity becomes especially welcome after extended periods of high valuation like we have been experiencing since calendar year 2014.  High valuations make it very difficult for value investors to find attractive common stock investments.  Consequently, a nice dose of bear market activity brings welcome relief as a result of previously overvalued stocks becoming viable investments again.

However, it is also important to point out that, as I customarily do, it is a market of stocks and not a stock market.  Therefore, I would also like to point out that I still consider that the overall market as measured by the S&P 500 remains moderately overvalued.  On the other hand, recent bearish market activity has brought a lot more choices for the valuation-oriented investor to choose from.

Therefore, I have recently engaged in a simple screening looking for value over the overall market based on industry classifications and subindustry classifications reported by FactSet Research Systems Inc. In each article in this series I will be providing a listing of screened research candidates from each of the following industry sectors:

FactSet Sectors – Subsectors

A Simple Valuation and Quality Screening Process

With this series of articles, I will be presenting a screening of companies that have become attractively valued primarily as a result of the bearish market activities experienced in 2018 from each of the above sectors.  I will be applying a rather simple valuation and quality-oriented screen across each of the sectors. First, I have screened for investment grade S&P credit ratings of BBB- or above.  Next, I have screened for low valuations based on P/E ratios between 2 and 17.  Finally, I have screened for long-term debt to capital no greater than 70%.

By keeping my screen simple, and at the same time rather broad, I will be able to identify attractively valued research candidates that I might have overlooked through a more rigorous screening process.  In other words, I’m looking for fresh ideas that I might have previously been overlooking.  Furthermore, I want to be clear that I do not consider every candidate that I have discovered as suitable for every investor.  However, I do consider them all to be attractively valued.  Additionally, I also believe that every investor will be able to find companies to research that meet their own goals, objectives and risk tolerances as this series unfolds.

In this part 1, I have found 6 research candidates from the commercial services sector as follows:

Sector 1: Commercial Services

Miscellaneous Commercial Services

Advertising/Marketing Services

Commercial Printing/Forms

Financial Publishing/Services

Personnel Services

There are 366 companies available in this sector.  However, I only found the following 6 companies that passed the screening process.  Although there were several additional companies that had P/E ratios below 17, they either failed because of less than investment grade credit ratings or high levels of debt.  Furthermore, below investment grade credit ratings was the primary factor that eliminated most of the 366 possible companies, followed by high valuations and excessive debt levels.

 

FAST Graphs Screenshots of the 6 Research Candidates 

The following screenshots provide a quick look at each of the 6 candidates screened out of over 19,000 possibilities.  Company descriptions courtesy of Wall Street Journal.  In the FAST Graphs analyze out loud video that follows the screenshots, I will provide additional details and thoughts on the possible attractiveness as well as the potential negatives of each of these research candidates. 

Genpact LTD (G)

Genpact Ltd. engages in the business process management, outsourcing, shared services, and information outsourcing. It focuses on designing and running intelligent operations and providing digital-led solutions. The company was founded by Pramod Bhasin in 1997 and is headquartered in Hamilton, Bermuda.

 Interpublic Group (IPG)

Interpublic Group of Cos., Inc. engages in the provision of advertising and marketing services. It specializes in consumer advertising, digital marketing, communications planning and media buying, public relations and specialized communications disciplines.

It operates through the Integrated Agency Network and Constituency Management Group segments. The Integrated Agency Network segment consists of McCann Worldgroup, Foote, Cone & Belding; MullenLowe Group; IPG Mediabrands; as well as its digital specialist agencies and domestic integrated agencies.

The Constituency Management Group segment offers public relations, meeting and event production, sports and entertainment marketing, corporate and brand identity, and strategic marketing consulting through the following brands: Weber Shandwick, DeVries, Golin, FutureBrand, Jack Morton, and Octagon Worldwide. The company was founded on September 18, 1930 and is headquartered in New York, NY.

 ManpowerGroup Inc (MAN) 

ManpowerGroup, Inc. engages in the provision of workforce solutions and services. It operates through the following segments: Americas, Southern Europe, Northern Europe, Asia Pacific Middle East, and Right Management.

The Americas segment offers services as Manpower, Experis, and ManpowerGroup Solutions through both branch and franchise offices. The Southern Europe segment provides permanent, temporary and contract recruitment, assessment and selection, training and outsourcing services. The Northern Europe includes comprehensive suite of workforce solutions and services through Manpower, Experis, ManpowerGroup Solutions in the United Kingdom, the Nordics, Germany, and the Netherlands. The Asia Pacific Middle East segment operates in Japan, Australia, Korea, China, and India.

The Right Management segment delivers talent and career management workforce solutions. The company was founded by Elmer Winter and Aaron Scheinfeld in 1948 and is headquartered in Milwaukee, WI.

Omnicom Group (OMC) 

Omnicom Group, Inc. is a holding company, which engages in the management and provision of advertising agencies. It offers marketing and corporate communications services. The company was founded by Maxwell Dane in 1944 and is headquartered in New York, NY.

 

Publicis Groupe (PUBGY)

 Publicis Groupe SA engages in the advertising industry. Its services include customer relationship management, direct marketing, sales promotion, events management, public relations, corporate, multicultural and financial communications. The company was founded by Marcel Bleustein-Blanchet in 1926 and is headquartered in Paris, France.

 

WPP Plc. (WPP)

WPP Plc engages in the provision of communications services. It operates through the following business segments: Advertising and Media Investment Management; Data Investment Management; Public Relations and Public Affairs; and Brand Consulting, Health & Wellness and Specialist Communications. The company was founded in 1985 and is headquartered in London, the United Kingdom.

 

Analyze out Loud Video: 6 Research Candidates in the Commercial Services Sector

 

 

Summary and Conclusions

I think it’s important to restate that out of 366 companies in the commercial services sector as reported by FactSet, only 6 of them screened for quality and value.  Consequently, as I stated in the beginning of the video, I do believe the general state of the market is still excessively valued.  However, thanks to recent bearish activity we are seeing more opportunities to find quality stocks at value.

I would also like to remind you that what I am presenting here are attractively valued research candidates.  However, as this series of articles unfolds you will discover that they come in all sizes, shapes and flavors.  Consequently, even though they all may be fairly-valued, that doesn’t simultaneously suggest that they are suitable for every investor. 

My next article will cover the communication sector.  Once again, out of the 203 possible companies in this sector, I only found 5 that I would consider quality companies at attractive valuation.

Disclosure: No positions.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

2 thoughts on “I Love Bear Markets – Look at All the Value It Has Brought Us! Part 1

  • I have been a subscriber since 2018-09-05 and since then I have not invested in a single stock that is not undervalued relative to earnings growth and dividend yield and made no investment without using FastGraphs. Importantly, I have not bought several stocks that others have recommended (eg NVDA, XLNX, Macdonalds) as I thought the probability of regression to an earnings mean was very likely. In the short term I have enjoyed excellent returns as these stocks and sectors move even slightly towards a stock price that is in line with earnings.(AMAT, CAH, C, LRCX,UBS,WPP,WHR,SWKS,)

    More impressive is the increase in confidence that I feel as I readjust my portfolio in line with Fast Graph principles and analysis.For the first time in my investing I actually feel some measure of control of the board and while no system can read the future at least the probabilities are more in my favour.

    Thanks

    Sincerely

    Henry Adamson

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