Six key elements to finding opportunities in the markets

Nov 11, 2021

Redacción Mapfre

Redacción Mapfre

Searching for hidden assets or undervalued stocks are among these key elements, according to the American investor Jon Boyar, renowned value investing guru, who participated this week in the annual Substrate AI event (formerly called Zona Value). He’s known for his Forgotten 40 selection, which proposes theses for 40 companies that will outperform their benchmark indices in the year to come. So what does he look for?

Coming out on top with your investments isn’t easy, but there are things that can help you get it right. The American investor analyzes companies that are ripe for attractive pricing, such as the initiation of dividend payments or share buyback programs that reflect healthy balance sheets; possible spin-offs that deliver value to shareholders, or companies that go all in on megatrends like demographics or which go through a change in control.

Its decision-making wisdom has seen it comfortably outperform its benchmark, the S&P 500, in recent years. With its long-term (10-year) Forgotten 40 selection, Boyar has achieved an annualized return of 6%, compared to 4.7% for the S&P 500.

 

The key elements

 

  1. Seek out hidden assets. The head of Boyar Value Group, founded by his father in 1975, highlights that quite often, corporate accounting can unwittingly hide some real gems, assets that are hidden from the eyes of the experts and which, with a little curiosity, patience and study can reveal real value.
  2. Great franchises. Boyar's thesis also supports the advantages of investing in large hidden franchises in companies unknown to most people. The American investor gives a very illustrative example with the purchase of Stokely-Van Camp, which was in the unglamorous bean business but also owned the Gatorade brand - worth considerably more than the whole company.
  3. Focus on valuations. Severely negative events create huge investment opportunities. When an industry falls out of favor with Wall Street, as happened with the pharmaceuticals in 1992, the affected stocks can fall more on the stock market than a buyer would be willing to pay, which creates opportunities for patient people.
  4. Fallen angels. A similar situation is suffered by the so-called fallen angels - companies that enjoyed great success in the past but have now lost their shine in the eyes of investors, causing their stock price to drop. In this scenario, aggressive behavior can give rise to numerous opportunities.
  5. Special situations. Spin-offs and businesses that bounce back from bankruptcy are a source of opportunity for Boyar, as long as they are valued correctly. Furthermore, in the case of spin-offs, they generally receive scant coverage by analysts, resulting in many shareholders of these newly listed companies selling up, which can push the price below its real value.
  6. Catalysts. Boyar Value Group highlights a series of catalysts in listed companies that can trigger opportunities, such as starting to pay dividends or share buyback programs that show a healthy balance sheet; possible spin-offs that make financial sense and deliver value, acquisitions or changes in company control.

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