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Recent Articles
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How Well Do Enterprise-Cash-Flow-Derived Fair Value Estimates Predict Future Stock Prices? -- And Thoughts on Behavioral Valuation
Apr 10, 2024
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Abstract: This paper attempts to solidify the efficacy of the predictive power of fair value estimates for stocks, as derived by the discounted enterprise cash flow (free cash flow to the firm) process. The piece emphasizes the difference between share prices and estimated fair (intrinsic) values and offers an overview of the discounted enterprise cash flow model, what causes fair value estimates to change, and what drivers may be most important within the context of the discounted enterprise cash flow model. The work examines the importance of both art and science in discounted enterprise cash flow valuation, and introduces the topic of behavioral valuation. An explanation of the methods used in the study include the creation of price-to-fair value comparisons and subsequent share-price performance of companies relative to their respective price-to-fair value ratios. The study in this work measures the predictive power of fair value estimates through eight subsequent time periods, or approximately 3 years. The subsets of data are broken into “undervalued” and “overvalued” stock groupings, and the predictive power of fair value estimates is then evaluated for each category.
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3 Dividend Growth Stocks for the Long Run
Apr 8, 2024
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Image: Mike Mozart.
There are many applications for the discounted cash-flow model. Not only does the tool help to derive a fair value estimate for a company, but the core drivers behind the intrinsic value calculation are also key drivers behind the health of a dividend payer. Stocks with a solid net cash position and also generate strong expected free cash flows more than their cash dividend obligations are in a much better position to grow their payouts in the future than stocks burdened by a net debt position and where their free cash flow comes up short. Apple, Microsoft and Dick’s Sporting Goods make the cut and are three of our favorite dividend growth stocks on the market today.
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What Is Gold Really Worth?
Apr 8, 2024
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Image: Gold prices have surged since 2020, and they recently hit an all-time high.
What is the yellow metal really worth? Let's discuss the greater fool characteristics of the price of gold.
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Geopolitical Risks Driving Crude Oil Prices Higher
Apr 7, 2024
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Image: Crude oil prices have staged a strong advance to start 2024.
Geopolitical tensions continue to be elevated as concerns grow that the war in the Middle East could further escalate, and as the war in Ukraine continues to rage on. On April 1, Israel apparently staged an attack on an Iran embassy in Syria that killed several military officials, including three senior Iranian commanders. Iran has indicated that it would retaliate, and many are speculating that the possible attack may be on Israeli soil, which would further increase global tensions. Ukraine has also been actively targeting Russian energy infrastructure, cutting into Russia’s refining capacity.
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