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Graham Griffin
Graham Griffin
Articles (143) 

December Members Engagement Meeting Recap

Dr. Tian shows off new ROIC vs. WACC chart

December 02, 2020 | About:

GuruFocus founder Dr. Charlie Tian went live today to present some of the new features that GuruFocus has implemented and answer questions from viewers. GuruFocus was pleased to be joined by an audience full of current members that were looking to explore the new feature GuruFocus has to offer.

Watch the full video here:

Tian began the presentation by jumping into a new chart that is featured on the summary page for each stock. The new chart highlights the return on invested capital versus the weighted average cost of capital.

A quick glance at the chart shows users whether ROIC is greater than WACC, which indicates the company is making good profits and not losing money. The chart also features a line that indicates the difference between the two values.

Tian looked to Apple (NASDAQ:AAPL) as a good example of a company that has a strong ROIC over the years. It is clear that the company is earning excess returns and will likely continue to do so moving into the future.

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In comparison, Tian looked to Ford (NYSE:F) to show how different the chart can be for different companies. Ford clearly shows a company that has high levels of expenditure to generate returns and it has not always been positive like Apple.

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Tian also looked to the Peter Lynch chart to explain some recent changes that help provide a more accurate evaluation. Traditionally the Peter Lynch Chart compares a company's stock price with a line showing the company's price-earnings ratio at 15. Lynch famously used this line to generate 29% returns each year over a 13-year period.

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GuruFocus has added a line that shows the price of the stock at a median price-earnings ratio over the last 10 years. As seen by the chart above, this shows a slightly different story for Apple's valuation. Tian believes this new line more accurately reflects stock valuation currently with interest rates sitting much lower than they were during Lynch's time.

Tian also spent a brief period of time showing the analyst estimates section of the stock summary pages. He explained that this section provides a good idea of how a company will do moving into the future. It is also used to generate the future sections of the GF Value Line.

Prompted by a question, Tian moved on to the model portfolios that GuruFocus has created and tracked over the last 15 years. The portfolio that has done the best overall is the one that contains the most broadly owned guru stocks. This portfolio is updated annually and contains 25 stocks, which Tian believes is a good number of stocks to maintain in a portfolio.

To wrap up the presentation ,Tian took the audience through the Buffett Indicator and then looked at the interactive chart. He explained that the market will eventually revert to its average and that there are other countries that are seeing better returns at the time being.

Disclosure: Author owns no stocks mentioned.

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