Featured Stocks In August’s Most Attractive/Most Dangerous Model Portfolios
Sam McBride | Aug 20, 2019 11:23AM ET
20 new stocks make our Most Attractive list this month, and 21 new stocks fall onto the Most Dangerous list this month. August’s Most Attractive and Most Dangerous stocks were made available to members on August 7, 2019.
The successes of these model portfolios highlight the value of our machine learning and AI [2] .
Our Most Attractive stocks have high and rising returns on invested capital (growth appreciation periods implied by their market valuations.
Builders FirstSource (NASDAQ:BLDR) is the featured stock from August’s Most Attractive Stocks Model Portfolio .
We first made BLDR a May 15, 2019 . Since then, BLDR is up 19% while the S&P 500 is up 3%.
Since 2012, BLDR’s revenue has grown 39% compounded annually while after-tax profit (ROIC ) is 12%, the highest it’s been since 2006.
Figure 1
Sources: New Constructs, LLC and company filings
h3 BLDR Valuation Provides Significant Upside Potential/h3At its current price of $19/share, BLDR has a price-to-economic book value (details in financial filings . Below are specifics on the adjustments we make based on Robo-Analyst findings in Builders FirstSource’s 2018 10-K:
Income Statement: we made $154 million of adjustments, with a net effect of removing $90 million in here .
Balance Sheet: we made $407 million of adjustments to calculate invested capital with a net increase of $318 million. One of the largest adjustments was $265 million in here .
Valuation: we made $1.6 billion of adjustments with a net effect of decreasing shareholder value by $1.6 billion. There were no adjustments that increased shareholder value. See all adjustments to BLDR’s valuation here .
h3 Most Dangerous Stocks Feature: Dentsply Sirona (XRAY: $53/share)/h3Dentsply Sirona (NASDAQ:XRAY) is the featured stock from August’s economic earnings declined from $175 million to -$375 million. XRAY has tried to stabilize its declining cash flows through large acquisitions and leadership changes, but nothing has succeeded in turning the business around so far.
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Figure 2
Sources: New Constructs, LLC and company filings
h3 XRAY Provides Poor Risk/Reward/h3Despite the deterioration in fundamentals, XRAY is priced for significant profit growth.To justify its current price of $53/share, XRAY must achieve its 2016 NOPAT margins of 14% (compared to 7% TTM) and grow NOPAT by 9% compounded annually for the next 10 years. details in financial filings . Below are specifics on the adjustments we make based on Robo-Analyst findings in Dentsply Sirona’s 2018 10-K:
Income Statement: we made $1.5 billion of adjustments, with a net effect of removing $1.4 billion in non-operating expense (35% of revenue). You can see all the adjustments made to XRAY’s income statement here .
Balance Sheet: we made $4.3 billion of adjustments to calculate invested capital with a net increase of $4 billion. One of the largest adjustments was $3 billion in here .
Valuation: we made $2.6 billion of adjustments with a net effect of decreasing shareholder value by $2.5 billion. The largest adjustment to shareholder value was $501 million in here .
This article originally published on August 14, 2019 .
Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, or theme.
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