The Daily Ticker: Value Investing 2.0 David Trainer: Today's discussion between Pete Renzulli, and David Trainer, CEO of New Constructs the significant role played by the Federal Reserve in shaping the market's performance. Additionally, the importance of the upcoming earnings season.

One of the main concepts explored was value investing, and the conversation touched upon the upcoming release of earnings reports.

New Constructs Value Investing Education:
https://www.newconstructs.com/education/

David reviews the New Constructs four steps of value investing 2.0, which encompassed crucial aspects such as distinguishing between economic earnings and accounting earnings, quantifying market expectations, and conducting discounted cash flow analysis. And finally, a review of return on invested capital, ROIC.

The importance of looking beyond reported accounting earnings to truly understand the profitability of a business. They argue that relying solely on earnings can be misleading and that investors should consider the full financial picture, including the income statement, balance sheet, cash flow statement, and footnotes.

Comparing the simplified version of profitability that Wall Street often focuses on to a doctor diagnosing a patient based solely on what they say, the experts stress the need for a more comprehensive analysis. Investors need an understanding core earnings and hidden distortions can give investors an advantage in predicting a company's performance and potential stock price movement.

To illustrate their point, they mention the case of MRNA, Moderna, While its reported earnings per share (EPS) may appear positive, a closer look at the footnotes reveals significant inventory write-downs that impact the true profitability of the company.

The report highlights the significance of buying stocks with lower cash flow expectations and selling those with higher cash flow expectations. It also differentiates between fundamental investments and sector rotation strategies.

Risk management and informed decision-making are emphasized as crucial factors in achieving investment success. Additionally, the report briefly mentions the use of a discounted cash flow model to assess whether expectations are overestimated or underestimated.

The text discusses the concept of reverse discounted cash flow (DCF) models and how they can be used to assess whether the expectations in the current stock price are too high or too low.
David Trainer explains that by using these models, investors can determine the future profitability of a company and whether it justifies the current stock price. The text also touches on the concept of net operating profit after tax (NOPAT) and its importance in calculating economic earnings.

New Constructs believes that NOPAT is a more reliable indicator of a company's value compared to economic earnings, which can be influenced by capital-intensive factors.

Additionally, the text mentions the importance of technology in calculating metrics such as return on invested capital and highlights the author's belief that relying on reliable fundamentals can make investors smarter and reduce risk.

The conversation moves to the difference between return on capital and return on invested capital, stating that there are various ways to measure these metrics, but the aim is to provide the most accurate measure.

The discussion ends with insights on stocks that are likely to beat or miss earnings expectations. It emphasizes the importance of conducting thorough research and using a framework to make informed investment decisions.

With the volatility of the stock market, it is crucial for investors to have a clear understanding of the potential risks and rewards associated with their investments.

In conclusion, companies must be held accountable for their claims of social responsibility, and investors should exercise caution and conduct careful analysis before making investment decisions.

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