Every December, Boyar’s Intrinsic Value Research produces The Forgotten Forty. The Forgotten Forty contains Boyar’s investment theses on the forty companies in their universe that they believe have the greatest potential for capital appreciation in the coming year due to a catalyst or corporate action that they believe is likely to occur to help unlock shareholder value. Over the last 10 years, the Forgotten Forty has demonstrated a compound annual growth rate of +6.79% per year versus +4.90% for the S&P 500.
Potential Catalysts or Corporate Actions Include:
- The initiation or potential initiation of either a dividend or meaningful stock repurchase program reflecting a company’s strong balance sheet with excess cash or meaningful financial capacity (e.g. low leverage levels).
- The potential or likelihood for a company to announce/pursue a separation or spinoff, which they believe makes economic sense and would help surface shareholder value.
- Management changes, acquisitions, macro themes (e.g. demographics, housing recovery, etc.) and prospects for improved operating performance due to business investments or changing industry/competitive dynamics.
Boyar is offering Value Walk readers a discount of 25% off if you purchase this report by 11/04/2014 – click on this link for the 25% discount. A copy of last year’s Forgotten Forty is embedded below.
Boyar Forgotten Forty 2013 – some excerpts
Bank of America Corporation
Bank of America Corp (NYSE:BAC), once again, remains one of our Forgotten Forty. Despite surging by greater than 100% from our 2011 Forgotten Forty to our 2012 edition and another 39% this past year, we believe BAC shares still present significant upside. The past gains rewarded investors who were able to see through the myriad of challenges BAC faced, while upcoming gains should be based more on positive operating results. While still having a long way to resolution, the Bank’s mortgage representations and warranties exposure has seen significant progress in 2013 and has become more of a quantifiable risk as opposed to a litigation “black hole.”
Boyar Forgotten Forty: JPMorgan Chase & Co.
JPMorgan Chase & Co. (NYSE:JPM) has been reporting solid operating results, and share performance has begun to reflect the Company’s strong fundamentals (shares are up over 30% during the past year). However, we continue to believe that the firm’s long-term earnings power is still not fully reflected in the stock’s valuation. During the most recent quarter (3Q-13), JPM reported core EPS of $1.42 excluding special items, up about 2% from a year over year perspective. The most pronounced revenue growth originated from investment banking (up 6%), reflecting a substantial increase in equity underwriting fees via improved industry fundamentals and Company market share gains.
Boyar Forgotten Forty: Staples, Inc.
Despite its lack of revenue growth, Staples, Inc. (NASDAQ:SPLS) has remained a solid cash flow machine, maintains an excellent balance sheet, and is very shareholder friendly. Even with an expected decline in revenues this year of 2%, we expect that the Company will meet its free cash flow target of $900 million in 2013 (up 3.5% from last year and representing a respectable free cash flow yield of ~9%). From a balance sheet perspective, the Company remains in excellent health. At 9/30/2013, Staples had ~$1.4 billion in cash from which it plans to repay $867 million in debt due in January 2014.
Boyar Forgotten Forty: DIRECTV
DIRECTV (NASDAQ:DTV)’s Latin America subscribers increased from 1.6 million in 2005 to 10.3 million at year end 2012 driving a 36% and 50% increase in revenues and EBITDA, respectively. At 3Q 2013, DTV had 11.3 million Latin America subs, putting it on pace to double its subscriber base to 16 million between 2011 and 2016. The 2014 World Cup in Brazil should help sustain subscriber growth in the region. Despite this strong growth and some challenging conditions in select markets including Brazil, the outlook in Latin America remains favorable with pay-TV penetration rates in Brazil under 30% and the Company’s PanAmericana region at 40% compared with 96% in the U.S.
Boyar Forgotten Forty: Microsoft Corporation
We believe that Microsoft Corporation (NASDAQ:MSFT) deserves a superior multiple to the market in general, and during the next couple of years we believe that could occur. During the past four years, the Company has generated more than $25 billion in annual free cash flow, implying a free cash flow yield of more than 11%. Equally important the Company has sustained a stellar balance sheet. As of September 30th MSFT had in excess of $80 billion in cash and investments. After backing out total indebtedness of approximately $15 billion, MSFT had net cash of slightly less than $8 per share, representing roughly 21% of the Company’s current market capitalization.