Finding good stocks in today’s inflated market is even more difficult during earnings season, when noise and narratives fuel heightened speculation.
Instead of trying to guess the future, why not use research that is grounded in fundamentals and quantifying market expectations embedded in stock prices?
I do just that with my Stock Ratings, Fund Ratings, and AI Agent built with Google Cloud. The result?
Novel alpha – built from superior training data and an ontology that produces reliable research and stock picks.
To further demonstrate how my firm’s research creates alpha, I’m sharing a stock pick from my Most Attractive Stocks Model Portfolio, which identifies the best stocks in the market, i.e. the stocks that are not only undervalued but also possess strong fundamentals.
This pick comes with a concise summary that gives you insight into the rigor of quality research and my approach to picking stocks. I’m proud to share my work, and I want to help investors when they need it most.
Free Most Attractive Stocks Pick: First United Corp (FUNC)
First United Corp (FUNC: $36/share) has grown revenue and net operating profit after tax (NOPAT) by 7% and 18% compounded annually since 2014, respectively. First United’s NOPAT margin increased from 8% in 2014 to 23% in the trailing-twelve months (TTM), while its invested capital turns rose from 0.4 to 0.5 over the same time. Rising NOPAT margins and invested capital turns drive First United’s return on invested capital (ROIC) from 4% in 2014 to 12% in the TTM.
Figure 1: First United’s Revenue and NOPAT Since 2014
FUNC Is Undervalued
At its current price of $36/share, FUNC has a price-to-economic book value (PEBV) ratio of 0.6. This ratio means the market expects First United’s NOPAT to permanently decline by 40% from TTM levels. This expectation seems overly pessimistic for a company that has grown NOPAT by 10% compounded annually over the last five years and 18% compounded annually over the last ten years.
Even if First United’s NOPAT margin falls to 14% (compared to 23% in the TTM) and the company grows revenue by 3% (below ten-year CAGR of 7%) compounded annually through 2034, the stock would be worth $47/share today – a 31% upside. In this scenario, First United’s NOPAT would fall <1% compounded annually through 2034.
Should First United grow profits more in line with historical levels, the stock has even more upside.
Critical Details Found in Financial Filings by My Firm’s Robo-Analyst Technology
Below are specifics on the adjustments I made based on Robo-Analyst findings in First United’s 10-K and 10-Q:
Income Statement: I made nearly $10 million in adjustments, with a net effect of removing under $5 million in non-operating expense.
Balance Sheet: I made just under $90 million in adjustments to calculate invested capital with a net increase of over $40 million. One of the most notable adjustments was for other comprehensive income.
Valuation: I made just under $20 million in adjustments to shareholder value, with a net increase of under $5 million. The most notable adjustment was for overfunded pensions.