This series has been converted into a free E-Book titled, Stock Analysis Guide – Taking Stock in IGM, that is now available to members of The Stock Analysis Mailing List.
Taking Stock in IGM, Part IV:
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It is hard to find fault with IGM as an investment when the market is really negative.
Wonderful job of committing to text the process of fully researching a stock. My first reaction is that it probably took you longer to compose and publish this series of articles than it does to perform the actual due dilligence on a company from the first time you begin to take a look at it. Well done!
Thanks you two!!
It was very long process & took a few revisions to complete.
Hopefully more than a few new investors now have some better insight into what DD really means and how much time they should be taking in their analysis rather than just depending on analyst reviews.
This was obviously a very basic outline of my approach, but it should work as a useful tool and starting point for someone to add in their own preferences or changes
Brad:
Appreciate the lessons!
thanks,
RickT
How did you put together your book value numbers from the annual report? What other tools did you use?
I determine the tangible book value per share of a company (whether supplied on the annual report or not) for each company that I analyze. Tangible book value is what shareholders of the company can expect to receive if the company were to go bankrupt and takes out items such as goodwill that no one buys when assets are liquidated. Other information not supplied in the annual reports I do the old fashioned way: with a pen, paper & old accounting textbook/worksheet.
OK thanks. I noticed the figures for shareholder’ equity of 4.2 billion for 2007 and 3.8 billion for 2006 in the report and later 4,162,983,000 3,817.673,000 (on PDF page 55 I think) but they weren’t on the 10 year summary. Since 262.43 million outstanding shares times your figure of 14.41 BV/Share comes to 3781.61 (for 2006) and 262.43*15.76=4135.89 (for 2007) so I thought you might be using those rough estimate sorts of numbers.
Since you’re in health care what do you think of Stryker … not a dividend monster by any means but maybe some upside soon ? 🙂
Cheers and great site.
Can you explain the following section in a little more detail?
“Next I take ROE (21.5) and divide it by the current price to book of the company (2.4). The reason I divide ROE by the current P/B is because the price to book gives me an indication of how expensive it would be to replace the net assets of a company.”
I just can’t seem to make sense of your explaination (I’m a noob). To me it seems like you are taking the ROE – typically the ratio of net income to shareholder equity – and modifying it to take into account the current stock price (your invested equity). This is because when you buy shares the price you pay (equity invested) is typically different than the equity (book value) you are purchasing. You want to know the return on your invested equity.
Am I making any sense here? I know I’ve butchered it, but hopefully you can get the gist of what I’m saying.
ROE is my return on the equity I invest in a company and therefore a very important factor in the growth rate I want to calculate for a company. The problem that arises is that ROE can’t be easily linked to the premium/discount of the bookvalue of the company. Since book value growth, as a value investor, is another of my top priorities what I’m trying to do with ROE is take out any premium in the market price of the stock (P/B) that would scew my numbers wildly in one direction.
When I divided ROE by the current P/B I am taking out any premium on the book value of the company so that when I add in historical book value growth I don’t end up with a number that is drastically inflated. This methods gives me a conservative growth rate of the company for the market price I pay today and what return I can likely expect for this company based on its historical trends.
Does that help?
What do you think of recent downgrade by Dundee? Does IGM have sustainable competitive advantage? Despite their charge on their stake in GWO’s big losses they still made 141 million in Q4 selling financial products in this market so I think they are doing something right. The Dundee rating seems like sour grapes since they have themselves racked up losses for 3 of 4 last Qs I think ….
26$ seems like a pretty awesome price fora piece of IGM: ust wondered if you were still as committed to the company given updates to the situational analsysis.
Anon – I don’t pay too much attention to analyst recommendations usually because it’s a sold opinion (conflict of interest) and nearly always late to the actions of the stock. Stating concerns about a company after it’s already fallen to a 52 week low doesn’t seem like excellent foresight if you catch my drift.
$26 is still under my revised target price and the fundamentals of the company haven’t changed. This is a stock you want to buy in a down market because in an up market the premium valuation is almost always hard to swallow. They charge the highest fees in the industry, but most investors are too naive to know where to find them all or at what cost “advice” comes at. Fund redemptions are more reflective of the market sentiment then customer discontent with their products/services IMO.
I am still as committed to the company as I was before, but it won’t ever represent more than 5% of my CDN Dividend Portfolio (DivG) because of the individual risk associated with any company. As part of a diversified portfolio I believe it has a place and will do well over my intended holding period of 10-15 years.