Thoughts

Valuation plays a key role in finding the most interesting names. Every value investor will tell you that low valuations are a proxy for low expectations. For a name with a great earnings trend but high valuation, expectations might actually be correct, or even high. The buy side has its own unpublished earnings estimate, and a high valuation means expected earnings could be far higher than the published sell-side number.

Best Earnings Trend and Low Valuation

-- CLF, DE, AAPL, DELL, MAT, XOM, DD, COV, EL, RL, ACN, DIS, AZO, UPS

Contracts Barely Worth the Paper on Which They Are Written

Is rich pricing really locked in if market prices collapse?

As one analyzes soaring commodity names, be wary. With prices soaring, many analysts are asking companies if they are locking in high prices with their customers. For instance, on the MOS call last week, investors were asking this about their fertilizer sales. This question is usually asked in commodity-like names with their products subject to large swings. Analysts love to see "take or pay" contracts locking in demand.

The reality is they are barely worth the paper on which they are written. If prices soar further, you miss the upside, but is rich pricing really locked in if market prices collapse?

I far prefer companies that are realistic about the enforceability of sales contracts, and simply enjoy the good times when pricing is high. Contracted demand at high prices is rarely realized in the bad times.....