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Overview of Equity Analysis

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  1. Overview of Equity Analysis James L. Grant, Ph.D. JLG Research jim@jlgresearch.com

  2. “Process of Investing” • Goals and objectives-funding a future liability • Investment policy-asset allocation and style decision • Equity (and fixed income) strategy-active passive decision • Selecting the stocks (and bonds) • Performance measurement

  3. Traditional Financial Analysis Value-Based Metrics (VBM) Discounted cash flow (DCF) analysis Statistical/factor models Price relatives and ratios (margins, ROE) Free cash flow, EVA, and CFROI DDM model, FCF model, EVA model Regression analysis, BARRA, etc. Types of Equity Analysis

  4. Players using Stock Valuation Models • Boston Partners Asset Management (Fundamental catalyst) • Credit Suisse/HOLT (CFROI) • Centre Asset Management (Economic profit analysis) • Deutshe Bank Securities (CROCI) • Jacobs-Levy Equity Management (Long-short, market-neutral in a complex equity market) • JLG Research- Bottoms-up EVA approach and “Dow Fundamental” • State Street Global Advisors (SSGA)( Matrix equity) • Stern Stewart Equity Research (PRVIT, “Prove-it”)

  5. Return on Cost of Capital Capital (risk profile) (operating condition) Market Expectations of Future Performance (valuation) Stock Valuation Process:Key Elements of True Value:

  6. Thank you!