Finding Cheap High Quality Stocks

In our recent paper “High-Quality Midcap Value – The Case for Common Sense”, Kailash documented that many of the markets most profitable firms were trading at a discount to the market average valuations.

Figure 13 below shows:

The number of firms that are in Cheap High-Quality has only been larger at the peak of the internet mania [7]
There has only been one prior instance since 1963 where one could find so much “Porterhouse steak trading at hamburger prices”

Per the paper, Kailash believes that despite elevated valuations for buyers of index funds, this may be a generational opportunity to buy high quality firms at low prices for stock-pickers.

For some examples of how our quantamental process works, click on any of our posts about Mohawk Industries, Hillenbrand’s Stock, Snapchat, EOG’s stock or Devon Energy. Another set of posts that readers might find of interest would be our piece on the best credit card stocks to buy and undervalued energy stocks. After reading that, we encourage you to review our post ARKF Dividend vs. XLF Dividend: To Pay or Be Paid. In the piece on credit card stocks we made the case that high quality, profitably and well-reserved household brand-name companies were available for cheap. In contrast, novel new “fintech” stocks were priced to perfection. Needless to say: we favored the former and panned the latter.

If you are unsure about how quantamental tools can help bring discipline and process to your investment organization please reach out to us. We have been at this for over 12 years and our seasoned research team has over 55 years of experience navigating bubbles both here in the US and in markets around the world. Our products bring cutting edge tools steeped in behavioral finance to you in a way that is easy to use and understand. We can help you cut out the noise, stay focused and stay on message with your clients.

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As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade. If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you. KCR also offers a wide range of easy-to-use but sophisticated tools. Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
Kailash Capital’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias. L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.

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Disclaimer

The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital, LLC and its affiliates (collectively, “Kailash Capital”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital. In preparing the information, data, analyses, and opinions presented herein, Kailash Capital has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital, however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2021 Kailash Capital, LLC – All rights reserved.

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