Featured Stocks In February’s Most Attractive/Most Dangerous Model Portfolios

16 new stocks make our Most Attractive list this month, and 15 new stocks fall onto the Most Dangerous list this month. 

The successes of these model portfolios highlight the value of our machine learning and AI Robo-Analyst technology[1], which helps clients fulfill the fiduciary duty of care and make smarter investments[2].

Our Most Attractive stocks have high and rising returns on invested capital (ROIC) and low price to economic book value ratios. Most Dangerous Stocks have misleading earnings and long growth appreciation periods implied by their market valuations.

Most Attractive Stocks Feature for February: Heidrick & Struggles International (HSII: $32/share)

Heidrick & Struggles International (HSII) is the featured stock from February’s Most Attractive Stocks Model Portfolio.

Since 2012, HSII has grown after-tax operating profit (NOPAT) by 10% compounded annually. HSII’s trailing twelve month NOPAT is up an impressive 44% over the prior TTM period. Profit growth has been fueled by rising NOPAT margins, which are up from 4% in 2013 to 6% TTM. HSII’s return on invested capital (ROIC) has improved from 6% to 11% over the same time.

Figure 1: HSII Revenue & NOPAT Since 2012

Sources: New Constructs, LLC and company filings

HSII Valuation Provides Significant Upside

At its current price of $32/share, HSII has a price-to-economic book value (PEBV) ratio of 0.9. This ratio means the market expects HSII’s NOPAT to permanently decline by 10%. This expectation seems overly pessimistic for a firm that has grown NOPAT by 10% compounded annually over the past five years.

If HSII can maintain TTM NOPAT margins (6%) and grow NOPAT by just 6% compounded annually for the next decade, the stock is worth $40/share today – a 25% upside. Click here to see the math behind this dynamic DCF scenario.

Critical Details Found in Financial Filings by Our Robo-Analyst Technology

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Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme.

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