New Stocks Make Most Attractive/Dangerous Lists For August

Our Most Attractive and Most Dangerous stocks for August were made available to the public at midnight on Monday. July saw some strong performances from our picks. Most Attractive Large Cap stock PetSmart(PETM) gained 14%, and last month’s feature Neustar (NSR) was up 6%.

Our Most Dangerous Stocks (-5.9%) fell by more than the S&P 500 (-2.2%) and outperformed as a short portfolio. Most Dangerous Small Cap stock Real Page (RP) fell by 29%. In total, 12 out of the 40 Most Dangerous stocks last month fell by over 10%.

These successes underscore the benefit of our diligence. Being a true value investor is an increasingly difficult, if not impossible, task (see “Secrets to Annual Reports”). By scrupulously analyzing every word in annual reports, our research protects investors’ portfolios and allows our clients to execute value-investing strategies with more confidence and integrity.

10 new stocks make our Most Attractive list and 7 new stocks fall onto the Most Dangerous list this month.

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

Most Attractive Stock Feature For July: NetApp (NTAP: ~$39/share)

NetApp (NTAP) is one of the additions to our Most Attractive stocks for August. Investors have soured on this stock over the past year as revenue growth has slowed. In its focus on the top line, the market seems to have missed the excellent cash flows and cheap valuation of this data storage provider.

NTAP has done something really impressive over the past couple years. It has increased after-tax profit (NOPAT) while significantly reducing its invested capital. Figure 1 has the details.

Last year, NTAP earned an ROIC of 43%, the highest of any data storage company we cover. NTAP’s significantly improved gross margin—up from 59% to 62%–allowed it to grow NOPAT significantly even though revenue was flat for the year.

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Disclosure: NewConstructs staff receive no compensation to write about any specific stock, sector, or theme.

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