The more tools you have in your investing tool kit, the more investment opportunities become available to you.
In 2023, The Value Meter was an essential tool that helped us identify a bunch of intriguing investments.
Investments generally take at least a couple of years to fully play out, but let’s take a look at how a few of the stocks I evaluated in 2023 have turned out so far!
A Win-Win Scenario
In March, I spotted an undervalued arbitrage opportunity in an upcoming merger.
Despite Activision Blizzard having already accepted Microsoft‘s (Nasdaq: MSFT) offer of $95 per share, Activision shares still traded for just $78.
My view was that this was a no-lose opportunity. If the deal were to close at $95, Activision would be a great investment. But even if the deal didn’t close, I thought buying Activision at $78 was still an attractive purchase.
So The Value Meter gave Activision a rating of “Slightly Undervalued.”
Then, on October 13, Microsoft closed the deal at $95.
That was the ideal result.
The buyout price was a 20% premium to where Activision was trading when I ran it through The Value Meter. This merger arbitrage play turned into a quick winner.
A Sparkling Spinoff
In February, I zeroed in on a spinoff play: Corebridge Financial (NYSE: CRBG).
A Purdue University study over the 36-year period from 1965 to 2000 found that in the first 12 months after a spinoff, the new companies outperformed their parent companies by a whopping 20%.
And with Corebridge trading at half the valuation of its peers, The Value Meter assessed it as being “Slightly Undervalued.”
But the timing of my Corebridge analysis couldn’t have been worse.
Immediately after I issued my rating, Corebridge’s stock got crushed during the regional banking panic in March.
Since then, though, Corebridge’s share price has fully recovered… and then some. It’s up 7.4% since we evaluated it.
And this one isn’t done. This stock is still cheap, so I expect that there is more upside to come.
Trust the Insiders
In June, I was attracted to a sector that was experiencing a large amount of insider buying.
At that time, executives at regional banks were buying shares of their own companies at the highest rate we’d seen since the first quarter of 2020.
Regional banks’ share prices had tanked because of the fear surrounding the very high-profile failures of Silicon Valley Bank, Signature Bank and First Republic Bank.
Investors were afraid that other banks would experience runs and lose large amounts of deposits.
But I figured that the insiders knew exactly what was happening inside their banks. And if their deposit bases weren’t holding up well, they wouldn’t have been buying.
To profit from this insider buying opportunity, I recommended the SPDR S&P Regional Banking ETF (NYSE: KRE) and gave it an “Extremely Undervalued” rating.
It took a while for the fear in the sector to subside, but this exchange-traded fund is now up more than 20% since I wrote about it in early June.
A Missed Opportunity
Now let’s move to what looks like the biggest mistake I made in 2023. In April, I used a low price-to-earnings (P/E) stock screen to identify Carlyle Group (Nasdaq: CG) as a potential value investment.
Carlyle’s earnings in 2022 were $3.35 per share. At a price of about $31, the stock was trading at just 9.2 times earnings when I ran it through The Value Meter.
On top of that, Carlyle’s dividend yield was a very rewarding 4.2%.
But despite a single-digit P/E ratio and a nice dividend, I concluded that Carlyle Group was “Appropriately Valued.”
My reasoning was that Carlyle’s business model causes its earnings to be very unpredictable from year to year.
Some years bring profit booms. Other years… not so much.
Because of this earnings unpredictability, Carlyle has always traded at a low P/E ratio. Its 9.2 P/E ratio in April was right in line with where the company had normally been valued.
Since then, Carlyle’s stock has rocketed higher by almost 35%.
A strong third quarter earnings release, falling interest rates and a great run by the overall stock market triggered a big move in Carlyle’s stock in early November.
I wouldn’t change my conclusion that Carlyle was fairly valued based on what I knew back in April, but I certainly missed a big winner with this one.
The Value Meter is coming back even stronger in 2024, and I will continue using every tool in my investing tool kit to find stocks to dive into.
Happy New Year!