Book Reviews, Value Investing

Book Review: New Era Value Investing by Nancy Tengler

Rating: Average

Some book that I picked up when I got the Dollar Crisis book (see previous review)

Explains author's stock selection methodology using Relative Dividend Yield (RDY) and Relative Price-to-Sales-Ratio (RPSR) and 12 other qualitative/quantitative factors.


  1. RDY = Stock dividend yield / Market index dividend yield, where Market index dividend yield = Index annual dividend / Current market value
  2. Author assumes that for companies with "dividend-paying cultures", dividend is a good indicator of a company's own expectations of future earnings growth prospects. Boards set dividend policies so that the dividend can remain a relatively constant percentage of earnings in good times and bad (showed example of Chevron (CHV) where dividends tracked the volatile earnings).
  3. Sell when RDY is below 1. Can only buy when RDY is above 1.25. RDY does not work for stocks with Relative Price not correlated with RDY. Relative Prices = price of stock / price of S&P 500.
  4. Stocks with high RDY have very depressed prices and are totally shunned by the market. Author aims to use that to look at stocks while Wall Street is not looking.
  5. PSR = Price of stock / Sales per share. RPSR = Stock PSR / S&P 500 PSR
  6. Sell stock at mean + stdev. Buy stock at mean – stdev.
  7. Screen dividend-paying stocks using RDY. Screen no-dividend-paying stocks using RPSR. After that, screen using 12 fundamental factors.
  8. 12 fundamental factors as follows:
    1. Buggy Whip: Are the company's products viable today and into the foreseeable future?
    2. Franchise or Niche Value: Is the company profitably maintaining/gaining market share? Can the company leverage its franchise to enter new markets profitably over time? Has franchase value increased over time?
    3. Top Management and Board of Directors: What is the strength of a company's management depth and culture? Is the management compensation plan tied to increasing shareholder value? Is the Board of Directors independent and relevant (size of board, insiders vs independents, quality and breadth of board)?
    4. Sales/Revenue Growth: Historical growth rates, industry growth rate, trends, estimated long-term company growth rates and catalysts, declining/stable/improving competitive position.
    5. Operating Margins: Trend analysis of firm's operating margins. Operating margins relative to industry margins.
    6. Relative P/E: Trailing/current/foward P/E relative to industry. Historical P/Es. Projected EPS growth rate relative to the industry growth rate.
    7. Positive Free Cash Flow: Free cash flow trend (operating net + DD&A – capital spending – common dividends). Trend in operating cash flow per share relative to EPS. Working capital turnover trend analysis relative to historical and industry. Historical and projected ability of the company to fund its growth internally.
    8. Dividend Coverage and Growth: Current payout ratio in-line with peers. Current yield relative to historical yield. Dividend growth rate relative to earnings growth rate.
    9. Asset Turnover: Improving/deteriorating asset turnover. Company turnover ratio relative to indsutry.
    10. Investment in Business/ROIC: Trend analysis of firm's ROIC relative to WACC. Capex trends relative to depreciation for the company and industry. R&D as a percentage of sales historically and relative to industry trends.
    11. Equity Leverage: Increasing/decreasing leverage. Earnings growth relative to the growth in leverage. Operating margin trends relative to growth in leverage. History of write-offs and restructuring charges if growth has been acquisition driven.
    12. Financial Risk: Debt/equity ratio adjusted to include off-balance sheet items. Trend analysis of the coverage ratio. Firm's reliance on access to capital markets to fund its growth. Firm's historical and projected credit ratings by S&P and Moody's. Firm's ability to fund any maturing debt and/or puttable bonds over the next 2 years. Specific restrictions/covenants stipulated in available credit lines and debt outstanding.
  9. Tech stocks tend to be negatively correalted with Pharmaceutical stocks. IT stocks negatively correlated with Financial stocks.

– END –



One thought on “Book Review: New Era Value Investing by Nancy Tengler

  1. Great article, The concept of value investing has encouraged me to start a portal of value investing on the Indian stock markets. I am doing analysis of Low PE, High dividend yields, Low PB and Low PB with high returns. I really appreciate the effort you have put in your blog.

    Posted by Srinivas Rao | September 16, 2009, 4:11 pm

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