Stock Exchange: The Role Of Valuation In Trading

Investors who use valuation do it in an absolute sense — the way we do in our Great Stocks program — but what about traders. When the market sets a price that is much different, it reflects broad-based opinion that the typical valuation method is not accurate. Our models sometimes pick that up. Our trading model picks are based upon technical factors, but these often reflect valuation versus the past or versus other stocks/sectors.

Our guest expert this week is Robert Marcin, the founder and general partner of Defiance Asset Management. Formerly, Marcin was a partner at Miller, Anderson & Sherrerd and a managing director at Morgan Stanley, where he managed the MAS Value fund  (currently Morgan Stanley Institutional Value). We invite our readers to follow him on Scutify.

This Week—Oscar Eats Out

This week’s picks are especially interesting from a value perspective. Our technical models often sense a change in valuation – which they find attractive. Robert has a different take.


Oscar: This week, I like the restaurants sector. We’ll use Bloomin’ Brands (BLMN) as an example:

Price has been highly variable, though its current price matches up almost exactly with its 200 day moving average. That’s part of the reason why I would move to make this part of a restaurants sector holding for the next month. I predict modest gains, likely near the $20 level.

Robert: Bloomin Brands is an inexpensive stock but with little fundamental catalyst to drive shares higher unless it’s simply broad restaurant exposure one is looking for.

Oscar: I am shooting for the broad exposure, but I like the price here too.

Robert: The stock is cheap at 12.5x’s earnings and 7x’s ev/ebitda, but with little growth in revenues or earnings forecasted, there’s not a lot of conceptual appeal here for a sustained move higher.

Oscar: How about my $20 target? What are my risks here?

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The Stock Exchange does not have all the answers, but it provides good ideas and a stimulus for your own trading.

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