You just can’t buy cheap stocks, and hope and pray things will work out. You know this! Not you personally — you know, the universal you.
The fundamental framework of the Valuentum Buying Index protects you from falling knives. It requires stocks to be both underpriced and “going up” before we would consider them. Yes, we can talk castles, moats, dividends, and anything else you’d like. But the VBI is the essence of our teachings.
It’s the culmination of all research and analysis. We’re not kidding. Name it. It’s in there.
The best stocks will be ones that are underpriced on a whole variety of different metrics and are also experiencing buying action or accumulation, as revealed by an upward advance in the share price. Simply by definition, lots of investors are interested in these types of stocks from the value through momentum crowds, and their buying means the likelihood of price-to-fair value convergence is increased.
Though we’ve been fans of its valuation, Michael Kors (KORS) hasn’t registered above a 6 on the Valuentum Buying Index in any update since we picked up the company in September 2013. We require a rating of a 9 or 10 to initially become interested in shares. Examples like these are exactly why we keep pounding the table that the best ideas must have both strong value and momentum qualities.
None of this is new material. It’s not a matter of opinion – but a structural fact of the markets. Upward buying pressure is eventually needed for stocks to converge to intrinsic value. If there’s one takeaway from the Michael Kors’ debacle, it is the following learning lesson:
The market is not a vacuum where a wizard magically sets the prices without the consideration of market participants. Prices are set by buyers and sellers; they always have, and they always will. And even undervalued stocks can keep going down! Market participants make mistakes all the time. This is why we wait for a pricing bottom, revealed by a steady upward advance, on the best values in the market before considering them in the newsletters. The market eventually has to agree with you for your idea to work out. You can’t win unless others eventually agree with you. This is not an opinion, but how the market works.
Our report on Michael Kors will be updated this evening, but our updated enterprise discounted cash-flow valuation model on the company can be downloaded —5/28/2015. Have a look. Our updated fair value estimate for Michael Kors is $74 per share, and its preliminary updated Valuentum Buying Index rating is an 8. What does an 8 mean? It means we’re now watching the company like a hawk for an entry point. Any sustainable share price advance from here could represent the upswing we require to establish a position.
Valuentum is not just value. It’s Valuentum: Value + momentum. Having both in an idea certainly increases the likelihood that such an idea will work out. It’s not the only way to invest. But, my goodness, it’s one of the best, if not, the best. And it’s not the only thing we do here either…
Ideas in the Best Ideas portfolio have met the criteria of both good value and good momentum characteristics to warrant their positions. That’s why they are in there. On those ideas, we’re waiting for price-to-fair value convergence, and their VBI ratings will change as they approach such targets.
Luxury Goods – Ultra & Aspirational: BID, CFRUY, COH, CTHR, FOSL, KORS, LUX, LVMHF, RL, TIF