innovative remodeling hoffman estates disability remodeling north barrington rps remodeling chicago building onto a house beach park home additions that add value buffalo grove .. Chicago Drug testing

Stock Valuation using the SMP Model

Disclaimer: Please note that I do not necessarily purchase, own, or partake of any of the securities or other financial instruments mentioned in this article. I also do not take any responsibility for any actions resulting from any actions taken by anyone who reads this article. You are responsible for your own finances - no one else. Do your yown due diligence when researching financial matters.

The SMP (Stock Market Plus) Stock Valuation Model is founded on the idea that in any market, on average, an investor will beat the market by purchasing undervalued securities at bargain prices. The model suggests building a diversified portfolio of securities that will (theoretically) surpass their current value even in a dismal bear market over a period of 10 years. The SMP Model is extremely sensible. It takes a stock's NTA (Net Tangible Assets), factors in projected growth, and flavors the results with a little market pessimism for good measure. The model is simple enough, but requires research that you can't obtain with your average stock screener.

How do I know that the SMP Model works? In early 2004, tired of my losses that arose from trying to play the market's short-term ups and downs, I came up with an idea for long-term investing. I reasoned that a security's intrinsic value was its current NTA per share, plus its projected Earnings Per Share (EPS) growth, year-over-year going forward, tempered by the realistic possibility of an extended bear market. Those stocks that could come out ahead of their current prices over time, even in a bad market, were the ones that I wanted to consider. I cut the projections off at ten years, because that provided me with a realistic long-term timeline to watch the stocks under consideration. This idea about stock valuation is probably not unique, and I do not claim to be the first person to ever think of stocks in this light. What I like about the model is that it takes away the guesswork. You plug in the numbers, and let the projections speak for themselves.

What kind of performance has the Model returned? In February, 2004, I started tracking a portfolio of 10 stocks, selected by the SMP Model. By April, 2005, that portfolio had produced over a 17% gain, in a little over a year. Now, again, if you're looking for 200% gains, go try Vegas or the racetrack. Realistic, long-term gains are slow and steady, and require diversification of assets for self-preservation. By, comparison, the stock markets have been pretty even (zero gain) over that time, with the S & P outperforming the Dow and Nasdaq.

What kind of stocks does the model like? Well, I'll share some that it doesn't like...Walmart, Microsoft, Gateway, EBAY, Oracle...some real heavyweights. Now, for ones that the SMP Model projects to be worth more than their current prices in ten years...Providian, Washington Mutual, LJ International, Ford, General Motors. I'll give you a larger list later. But, now, I want to give you the formula for the SMP Model so you can build a sensible portfolio today...

First, a couple of definitions:

NTA = Net Tangible Assets = (Total Assets - Intangible Assets - Liabilities)

EPS = Earnings Per Share = Total Net Income/Outstanding Shares

EPS(0) = EPS(current year) = projected EPS (current year) * discount rate (I use .12)

GRW = Projected EPS Growth Rate (use 5-yr or 10-yr if available)

Now here's the formula...

SMP(value) = current NTA/share + EPS(0) + [EPS(0) * (1 + GRW * discount (.12))](= EPS(1)) + [EPS(1) * (1 + GRW * discount (.12))](= EPS(2)) + [EPS(3) + EPS(4) + ... + EPS(10)

OK, the formula's a little nasty, but if you plug it in to a spreadsheet, it works quite well. Just so you know that you're on target with your math, here's a sample computation for (WM) Washington Mutual (these numbers may be slightly different than current values):

NTA = 13.951 (in billions) Shares = .873 NTA/Share = 13.951/.873 = 15.98 (that means WM has current NTA of $15.98) EPS = 3.70 GRW = .10 Discount rate = .12 (using such a high rate builds in the possibility of a bear market/inflation)

EPS(0) = 3.70 * (1 - .12) = 3.26

EPS(1) = 3.26 * (1 + .10 - .12) = 3.19

EPS(2) = 3.19 * (1 + .10 - .12) = 3.13

...

EPS(10) = EPS(9) + (1 + .10 - .12) = 2.71

NTA/Share + EPS(0...10) = $45.76

So, we arrive at a SMP Model value for WM of $45.76, with the current share price around $39. Thus, WM would pass the SMP test, and I would recommend this stock as part of a diversified portfolio.

As a side note, I am not seeking any kind of contribution or fee for this knowledge. I hope it benefits you as I think it will.

Prosperous investing to you!

http://www.stockmarketplus.com

I am in my mid-thirties and have a Bachelor's Degree in Accounting, with a minor in Decision Science. I entered the accounting field ten years ago, when I started working for a software company, where I stayed seven years. I am now the Inventory Control Manager for a large winery. My experience in the financial markets includes both personal and business endeavors.

In The News:

Will the Stock Market be Lower in October?

The stock market often closes a week in the middle... Read More

Maximizing a Stock Market Investment

Maximizing a stock market investmentThere are several factors an investor... Read More

Online Investing & Stock & Share Trading: 4 Reasons Why Most Online Investors & Traders Go Broke

Are you attracted to the idea of being in control... Read More

A Common Misconception about Stock Prices

I cringe every time I hear a novice investor tell... Read More

How To Be A Winner

Everyone who invests in the stock market wants to be... Read More

Mid-Cap Stocks: Asset Class with an Identity Crisis

Much like the middle child, mid-cap stocks have long struggled... Read More

Perfect Storm

Having lived aboard a sailboat for 2 years I was... Read More

Discipline

One of the great "secrets" of successful people is discipline... Read More

Why This Bear?

People are constantly asking me why is the stock market... Read More

Mutual Fund Ball and Chain

The broker told me not to sell because the mutual... Read More

Forecasting the Stock Market

Every day I see in the financial section of newspapers... Read More

Hedge Funds: the Good, the Bad, and the Ugly

Alfred Winslow Jones started hedge funds in 1949. He was... Read More

Outsourcing

It's about time someone spoke the truth concerning outsourcing. The... Read More

Trend Trading - Trading Stocks Using Technical Analysis and Swing Trading Strategies

Peter is a professional trader, Paul is not. Peter has... Read More

The Golden Goose is Sick

It is finally catching up with them. The brokerage companies... Read More

NASDAQ 800?

In November of 2000 when the NASDAQ was trading at... Read More

Lights of the Stock Market

There are red lights, green lights, blue lights and spot... Read More

Race Horses and Mutual Funds

For years investors have been taught to look into the... Read More

Big Buildings Can Mean Big Economic Disaster

AS BUILDERS BEGIN WORK ON THE FREEDOM TOWER in New... Read More

Your Job

There are so many kinds of work that needs to... Read More

Keep Your Profits

It looks like we have now entered a new bull... Read More

What the Hell is a Stock option?

A 'stock option' is a contract between two parties giving... Read More

What Does it Take to be a Stock Trader?

It takes a total mental commitment to the task. It... Read More

Evaluation I

An insane person cannot evaluate an insane evaluation system.As you... Read More

The 401(K): How The Insider Has Stolen Your Retirement!

Mutual funds were moderately successful in creating a presence in... Read More

led wholesaler led parking lot fixtures Pete's produce ..
led wholesaler led parking lot fixtures Pete's produce ..