Todd Asset Management LLC believes Price/Intrinsic Value is the most effective fundamental calculation available to determine the true value of a stock. It calculates the private market value of a stock. Comparing the market price to the calculated intrinsic value of a company or stock represents an opportunity to capture value.

To determine Price/Intrinsic value for a company we start by calculating earnings and dividends over 10 years at a growth rate based on market, industry and company-specific factors. We then discount all future cash flows to the present value using a discount rate based off of the Moody’s AAA Corporate Bond Yield and adjusted for an analysis based risk premium. The company’s current stock price is then compared to the calculated intrinsic value to determine attractiveness on an absolute and relative basis when compared to the rest of the universe.

P/IV does not guarantee a profit and does not protect against loss in declining markets.

The Multi-Factor Composite Score combines:

• Valuation
• Fundamentals
• Market Recognition

These factors produce a Composite Score from 0 to 16, where 0 is the least attractive and 16 is the most attractive ranking. Since Price/Intrinsic Value is our core discipline, it is double weighted. We believe as a stock’s Multi-Factor Composite Ranking rises, it’s probability of outperforming improves.

This tool is also useful when reviewing holdings within the portfolio as it can alert us to problems with a company. Declining rankings can be caused by overvaluation, weak fundamentals, or poor market acceptance. This will prompt further fundamental review with an eye towards reducing or eliminating the position.