Picking Possibilities In The IPO Market

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Initial public offerings (“IPO”) are heating up with 149 so far year to date – up 57% compared to the first half of last year – bringing a new wave of potential investments. We track the IPO market looking for companies that we think will become longtime leaders in their industry and good additions to one of our portfolios.

Each week, here in Porter & Co.’s Saturday Stock Screen, we apply our brainpower to uncover the most compelling, highest-upside investment ideas. And with this complimentary issue of the Daily Journal, we draw the curtain back to show you how we do it.

An important tool in our analytical toolbox is our stock screens, in which we apply a list of criteria – relating to different financial, accounting, and performance parameters – to sift through the 3,000+ publicly traded stocks on U.S. markets. That’s how we are able to identify the tiny fraction of the universe of U.S.-listed stocks that offer the best opportunities for making money.

We often use the results from these screens as a starting point for more in-depth analysis for possible inclusion in The Big Secret On Wall Street portfolio.

For Partner Pass members, we’ll often highlight an opportunity from the screen, or elsewhere (see below), that appears particularly compelling – not as an official recommendation, but as a stock that’s on our radar.

Questions about our Saturday Stock Screen?… drop me an email at [email protected].

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The filtering tool we’re showcasing this week is named “The World’s Best Businesses At Discounted Prices Screen.” 

We created this screen to identify capital efficient business models that not only generate above-average cash flow, but that return a barrel of cash to shareholders as well. We also added screening criteria to identify when these businesses trade at discounts to their historic valuations, as detailed below: 

1. Return on assets (“ROA”) exceeding 15% over the last five years, as a filter for capital efficiency
2. Free cash flow (“FCF”) margins exceeding 10% over the last five years, to select for businesses with above-average cash flow generation
3. Shareholder returns (including dividends and buybacks) that exceed 10% of the total market capitalization of the business over the last five years
4. Annual revenue increasing at more than 4% over the last five years, to select for businesses with steady growth 
5. Market capitalization over $1 billion to exclude micro-cap, low-liquidity stocks

We rank each of the stocks from this screen based on their current valuation versus their 10-year average, defined as the enterprise value (market capitalization plus net debt) to free cash flow (“EV/FCF”) multiple.

As of Thursday’s close, this screen produced the following 31 stocks, ranked in order from greatest valuation discount to least: 

Highs And Lows 

Each week, we also monitor any stocks making new 52-week highs. We do this because any stock on its way to generating 2x, 3x, or 10x returns will spend a lot of time making 52-week highs along the way. Thus, the new 52-week-high list provides an opportunity to flag these potential high performers before they really break out, with a particular emphasis on lower-profile, less widely-followed stocks that might have otherwise gone unnoticed. 

Notable stocks making new 52-week highs last week:

• Credicorp (BAP)
• BWX Technologies (BWXT)
• British American Tobacco (BTI)
• Cardinal Health (CAH)
• Mr. Cooper (COOP)
• Corteva (CTVA)
• Curtiss-Wright (CW)
• Fastenal (FAST)
• HEICO (HEI)
• International Business Machines (IBM)
• Indmed Incorporated (INSM)
• Jabil (JBL)
• McKesson (MCK)
• Microsoft (MSFT)
• Oklo (OKLO)
• Oracle (ORCL)
• Philip Morris International (PM)
• RTX (RTX)
• Roblox (RBLX)
• Sagimet Biosciences (SGMT)

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The Dark Consequences of Trump’s New Investment

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We also monitor stocks on the new 52-week-low list. In many cases, the names on this list are there for good reason – the market is often correctly pricing in their weak fundamentals. However, once in a while, a great business with excellent long-term prospects finds itself on this list due to a temporary setback. This can create the rare opportunity to buy top-shelf merchandise at bargain-basement prices. 

Notable stocks making new 52-week lows last week:

• Brown-Forman (BF.A)
• Boston Beer (SAM)
• ConAgra Brands (CAG)
• The Campbell’s Company (CPB)
• Eagle Materials (EXP)
• Spectrum Brands (SPB)
• Voyager Technologies (VOYG)
• Watsco (WSO.B)

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FOR PARTNERS ONLY

The Infrastructure For Digital Liquidity

Finally, we also monitor recent and upcoming initial public offerings (“IPO”) to identify promising businesses hitting the public markets. 

The company we are analyzing today is at the forefront of a new digital revolution, and it provides a key foundational component of decentralized finance (“DeFi”). DeFi is an open, global alternative to the existing financial system – built on public blockchains and governed by code rather than institutions. It enables people to borrow, lend, invest, trade, insure, and buy property without relying on banks, brokers, or clearinghouses, which can charge high fees and are slow to process settlements.

Just as the internet revolutionized access to information and gave rise to new platforms like Amazon (AMZN), Uber Technologies (UBER), and Airbnb (ABNB), blockchains have the potential to disrupt how money moves – reshaping the global monetary system in the process. Stablecoins are the fiat equivalent of digital currency and are becoming the foundation for efficient swaps across DeFi.

(To become a Partner Pass member, contact Lance James, our Director of Customer Care, at 888-610-8895, internationally at +1 443-815-4447, or via email at [email protected].)

The Increasing Activity In Internet Money