이 세 종목이 밸류 테스트를 통과할 수 있을까? 질문에 대한 답변

I love reading through the emails all of you send. They give me a chance to directly address the topics you want to hear about. We had several great questions roll in about a recent story on value investing, and many of our members want to know if specific companies would pass the value test shared in that story. Let me give a quick recap before we jump into my analysis in case you missed it.

Right now, regardless of the industry, companies should be focused on five key elements:

• Reducing debt
• Cutting expenses
• Generating cash
• Paying dividends or buying back shares
• Fortifying their economic moat

I also look at the cash generated by the company from operations after capital expenditures, known as free cash flow. Cash flow allows companies to do things like make acquisitions, pay out dividends, buy back shares, and invest in the growth of the company.

A company may not excel in all of these elements, but by using them all together as a guidepost, you can start to form an opinion on the value of a company. Once again, I want to thank everyone who sent in suggestions of stocks to evaluate. Although I can’t cover all of them today, I chose three that cover a wide range of industries that should offer a little something for everyone. And the first one on our list is one of my favorites.

Ryder System Inc. (R) — Thanks to Ted P. for writing in about this stock.

First there was a shortage of truck drivers. Now there’s a shortage of equipment. That’s great for Ryder System Inc. (R). Founded in Miami over a century ago when the Great Depression was at its worst, Ryder is one of the world’s largest integrated logistics and transportation solutions providers.

Operations consist of three different segments:

• Fleet Management Solutions — Full-service leasing including maintenance and commercial rental of trucks, tractors, and trailers to customers in the U.S., Canada, and the U.K.
• Supply Chain Solutions — Integrated supply chain solutions for logistics, distribution, and transportation in North America and Asia.
• Dedicated Transportation Solutions — Contracted transport solutions, such as local trucking fleets, for specific clients.

Normally, Ryder isn’t what you’d consider a high-growth company, as revenue has only seen modest climbs each year, outside of 2020, when revenue decreased. Yet it managed to increase revenues 28.46% in Q1 2022 from the previous year, and things are looking promising for the rest of the year for the company.

Because of the heavy expenditures for equipment, free cash flow tends to oscillate year to year. However, operating cash flow has steadily risen over time, coming in now at over $2.1 billion in 2021. The company has to use most of its cash on new equipment, but keep in mind that it’s better to have that cash available than to have to borrow a ton of money for new equipment each year.

Ryder pays a consistent dividend that grows over time and currently yields 2.92%. From a technical standpoint, this stock sits in the Green Zone, having recently returned from the Yellow Zone.

Source: TradeSmith

This stock isn’t extremely volatile, and for me, that’s a good thing. With a healthy dividend payout, solid growth prospects, and great cash flow, this is a stock that I could own without too much worry. It passes the value test.

Paramount Global (PARA) — Thanks to J.R.M. for writing in about this stock.

“Titanic,” CBS, MTV, Nickelodeon: All were brought to you thanks to Paramount Global. And on top of that, Paramount Global has one of the richest men in the world in its fan club: Warren Buffett. Chief Financial Officer Naveen Chopra recently touted Warren Buffett’s nearly $2.6 billion investment in the company. “We’ve always believed there’s a lot of upside, so it’s exciting to see someone with Berkshire’s track record see a lot of that same opportunity,” Chopra said in May. 

As you probably know, Paramount Global is a media and content company with its hands in television, movies, and now streaming services. Revenue for the company breaks down into the following categories:

• Advertising
• Affiliate
• Streaming
• Theatrical
• Licensing and Other

Source: Paramount Q4 Investor Presentation

Many investors are focused on streaming services. As of the first quarter, Paramount+ streaming stood at 40 million subscribers, with total streaming subscribers, which includes consumers with Pluto TV, Showtime, BET+, and/or Noggin, landing at 62 million subscribers. That streaming is important, as Paramount Global has been involved in many legacy forms of entertainment and needs to make sure it is keeping up with the times.

Now, total debt is $18.3 billion, and the company only has total cash of $5.3 billion, with operating cash flow over the trailing 12 months of negative $373 million. Not great for trying to pass some of the aspects of the value test. Also, the technical picture doesn’t look so great here.

Source: TradeSmith Finance

This chart looks a bit wonky because of a small scandal back in 2021 with Archegos Capital Management. You might remember the story where the hedge fund used far more leverage than it should have to scoop up shares of different stocks, with Paramount Global being one of them. That created a massive run in the share price, which was followed by a huge decline. The stock is and has remained in the Red Zone, and while it may be a decent investing opportunity in the future, it doesn’t pass the value test for me.

It is more of a growth stock right now, but it still pays a dividend with a yield of 3%.

Southern Copper Corp. (SCCO) — Thanks to Clifford S. for writing in about this stock.

Since the depths of the pandemic, copper prices have more than doubled.

Source: TradeSmith Finance

Supply chain snarls along with regional hoarding shrank global inventory, boosting prices of the commodity. So, it stands to reason that a company like Southern Copper would make a good investment. After all, it profits from higher copper prices. As one of the biggest integrated copper producers in the world, Southern Copper boasts the largest copper reserves in the industry.

Although the company is listed on the NYSE, it is 88.9% owned by Grupo México, a Mexican company listed on that country’s exchange. The company engages in mining, smelting, and related activities. While copper makes up the vast majority of its minerals, Southern Copper also mines for zinc and silver. As a miner, the company’s main costs are energy, labor, and capital equipment. With higher copper prices, Southern Copper is able to achieve better sales prices and higher margins.

I wouldn’t consider this stock cheap under certain metrics, but I also wouldn’t consider it overly expensive. In the favor of shareholders, the company has also increased its dividend more than sixfold since April 2020, now paying a generous 8%. This isn’t what I would call a value play; rather, I’d say the stock is closer to being appropriately priced, as there is always a risk that rate hikes lower demand for copper, sending prices plummeting.

It’s still worth keeping tabs on global copper inventory just in case we start to see it trend higher. However, the technical picture looks really good for Southern Copper.

Source: TradeSmith Finance

Shares have recently returned to the Green Zone after a brief dip into the Yellow Zone. Again, I want to thank everyone who wrote in with their questions. Let me know what you thought of this format and if you would like to see more of something like this going forward.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.