Dealmaker’s Diary: Big Money, Bargain Price

Alpesh Patel|October 31, 2024

With all eyes on the election… we’re looking at a $3 billion investment manager that tells a compelling story.

Its valuation suggests the market has significantly mispriced its potential. Plus, it hits the marks on my proprietary GVI ratio and ranks among the best for turning capital into cash.

The technicals suggest perfect timing too.

Join me for a deep dive into why this well-known name deserves fresh analysis, and learn the key indicators that matter beyond the obvious.

Sometimes the best opportunities aren’t in obscure corners of the market – they’re just waiting for investors to look at familiar names with fresh eyes.

Get all the details on the company – including its ticker – in my latest video.

This the kind of research my clients pay thousands for… but you get it for FREE as a Total Wealth subscriber.

Click on the image below to dive in.

TRANSCRIPT

Hi, everyone, and welcome to another Dealmaker’s Diary Stock of the Week.

It’s a really good one.

Federated Hermes (FHI). You’ve likely heard of it… it’s a big, well-known company.

But it’s not just about whether you’ve heard of a name. It’s actually the numbers which bring it to our attention. So my team brought me this amongst a bunch of others, and I decided on this one for the Stock of the Week.

It’s a leading global investment manager. Well, it doesn’t really bother me what they do. What bothers me is the ability to make money and make returns and make their stock price go up. So whilst they’re in the investment management business globally – with a market cap of $3 billion, small, all things considered – it’s some of the other numbers I want to draw to your attention, which were drawn to my attention, which attracted my attention to begin with.

First, on my Growth-Value-Income – or GVI – ratio, Hermes comes in at a 9. That’s my proprietary algorithm that examines the valuation of a company, the revenue growth of a company, the dividend yields of a company, and then weighs those factors and comes up with a total score. Anything above 7, including 7, is good, and meets my minimum criteria.

The stock’s forecast P/E, 10.5, is relatively cheap. You’re paying $10 for every dollar of expected profits.

Cash return on capital invested – or CROCI – is 16.8. That’s in the top quartile of all companies.

You’ve got a cash return on the capital the company invests at 16.8. Remember, companies in the top 25%, which this would be of all companies by CROCI, according to Goldman Sachs, generate roughly 30% per year.

The Sortino ratio is nearly where I want it… and I can live with that low volatility.

So what are we looking at on the chart?

I’m looking for the momentum to gradually ease up as it has done historically from these levels, and for the price to follow.

So I’m looking for this…

That’s the most ambitious, the absolute bullish case.

Why that’s the most bullish case? Very simple. If that previous trend were to continue, you might say, well it’s a bit optimistic. It should be a bit lower.

But those are pretty good numbers. So that’s what we’re looking at in terms of projections.

The stock is 44% undervalued by discount cash flow. Discount cash flow is not always the most accurate…. but 44.8% undervalued would fit in with the thesis of those kinds of returns we’re looking at generally.

Hope you enjoyed that. Hope it gave you an insight also into investing more generally.

Thank you all very much.