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AGCO: Fisher-Style Super Stock
04/09/2014 8:00 am EST
In his Validea newsletter, John Reese assesses the strategies of legendary investors. Here, he looks at a stock that qualifies as a "Super Stock" based on the price to sales investing strategy of Kenneth Fisher.
AGCO Corporation (AGCO) is a manufacturer and distributor of agricultural equipment and related replacement parts globally. Its products are marketed under a range of brands, including Challenger, Fendt, Massey Ferguson, and Valtra.
The company distributes its products through a combination of approximately 3,100 independent dealers and distributors in more than 140 countries.
Overall, AGCO earns a Guru Score of 100%, based on the price-to-sales strategy of Kenneth Fisher.
According to Fisher's strategy, the prospective company should have a low Price/Sales ratio. Smokestack (cyclical) companies with a Price/Sales ratio between 0.4 and 0.8 represent good values according to this methodology.
AGCO passes this test as its P/S of 0.46, based on trailing 12-month sales, falls within the "good values" range for cyclical companies. Less debt equals less risk according to this methodology. AGCO's Debt/Equity of 31.18% is acceptable, thus passing the test.
The prospective company should have a low Price/Sales ratio. AGCO's P/S ratio of 0.46 falls within the "good values " range for cyclical industries and is considered attractive.
This methodology looks for companies that have an inflation adjusted EPS growth rate greater than 15%. AGCO's inflation adjusted EPS growth rate of 27.41% passes the test.
This methodology looks for companies that have positive free cash per share. Companies should have enough free cash available to sustain three years of losses.
This is based on the premise that companies without cash will soon be out of business. AGCO's free cash per share of 3.68 passes this criterion.
This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. AGCO, whose three year net profit margin averages 5.81%, passes this evaluation.
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