Not everybody is an expert in everything. You are not going to be good at valuing everything. You have to concentrate on what your own particular circle of competence is.
-Bruce Greenwald, Columbia University, CSInvesting
Use your specialized knowledge to home in on stocks you can analyze, study them and then decide if they're worth owning. The best way to invest is to look at companies competing in the field where you work. Someone with deep restaurant-industry experience would have predicted the success of Panera Bread Co. and Chipotle Mexican Grill Inc., he says: "If you're in the steel industry and it ever turns around, you'll see it before I do."
Peter Lynch, Marketwatch
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Trying to adopt the teachings of great investors and investment writers I sourced great ideas from small and medium businessowners. I asked them for ideas on publicly traded companies in their space. Companies they admired or expected to do better than most people think they will. They came up with a total of six surprising and not-so-surprising names. To put their respective valuations into perspective: The S&P 500 is trading about 20x forward earnings but with a much lower expected growth rate compared to this group.
Now is a good time to be in healthcare. Consumers go online to take charge of their own health and that's great for companies like ourselves but also WebMD. They have an established brand, important in health information, and website while also having the answers to the questions healthcare consumers are looking for.
-Matt Behnke, President, Orhotic shop
WebMD trades at a forward P/E of 28.6x, a Price/Book value of 4.4x, a Price/Sales multiple of 4.2x and a Price/Cash Flow multiple of 17.2x.
It does sport a highly optimized balance sheet and at an interest coverage ratio of just 6.3x and a leverage ratio of 3.65 which makes it a very aggressive play. Over the past ten years the growth has been there with operating income increasing by an annualized 60%+ per year.
Residential construction is really taking off again. People are much more active looking for flooring and other home improvements. Home Depot is the 800 pound Gorilla in the space and profits across a broad product lineup. In the past they were sometimes expanding to questionable locations but today it is really well run.
-Johnny Carpet of Dallas Flooring Warehouse
Home Depot trades at a forward P/E of 22x, a Price/Book value of 44x, a Price/Sales multiple of 1.9x and a Price/Cash Flow multiple of 16.7x.
The company pays a 2.2% dividend and earnings have been growing by 8.5% annualized over the past ten years. Shareholders should take note of the $22 billion in long term debt but with $9 billion of Free Cash Flow it should be manageable.
I'm going with Alphabet (GOOG) (GOOGL). A lot of people don't realize that YouTube is the second largest search engine after Google. 1.3 billion people use YouTube while the site gets 30 million visits per day. It is an amazing property and monetization is very much in its early innings. There is YouTube Red but I expect the company to make other big leaps to increase profits of this underrated platform.
-Joe Bragg, CEO of Mulpix
Alphabet trades at a forward P/E of 27x, a Price/Book value of 4.6x, a Price/Sales multiple of 7.2x and a Price/Cash Flow multiple of 17.9x.
The company has grown revenue by 24% annualized over the past ten years and EPS by 19% annualized over the same period. The company's long term debt is negligible.
Probably a name many people won't expect: Twitter. Twitter isn't exactly getting the best press lately and it has lost about 50% of its value since its IPO. But it is a hugely influential social network. There continues to be tremendous demand from our customers for Twitter. If they can find a solution to better monetize their platform in a better way there is tremendous potential for a turnaround or for Twitter to get bought out just like LinkedIn.
-CEO Kenneth Wagner, Social Shop
Twitter trades at a Price/Book value of 3.1x, a Price/Sales multiple of 5.7x and a Price/Cash Flow multiple of 17.8x. Its 5 year average revenue growth is 88%.
TripAdvisor was founded only in 2000. In less than two decades it has grown to a leading travel platform. We aren't in the travel business but definitely strife to emulate the way TripAdvisor disrupted its industry and launched a platform business with a strong network effect that is now critical to travellers, hotels and restaurants.
-Jen Shima, The Bacon
TripAdvisor trades at a forward P/E of 32x, a Price/Book value of 3.8x, a Price/Sales multiple of 3.7x and a Price/Cash Flow multiple of 16.6x.
The company has grown revenue by 18% annualized over the past five years.
There is just no way around Amazon. Jeff Bezos is such a genius and he built an incredible business that is disrupting every corner of the retail space. We are active in some categories Amazon doesn't do but also compete directly in a few categories. Just like brick & mortar stores couldn't ignore the rise of Walmart (WMT), no retailer can ignore Amazon (AMZN). We are confident that we can hold our own but you have to study them and learn from their customer centric model or you are gone.
Keith Bridges, Owner, Safford Trading Company
Amazon trades at a forward P/E of 135x, a Price/Book value of 22x, a Price/Sales multiple of 3.5x and a Price/Cash Flow multiple of 29.7x. The multiples on Amazon on are high. However, Bezos has taken some pages out of the John Malone playbook and tends to gun for growth of the business and reinvesting as much as possible.
