For the model portfolio at Validea, editor John Reese selects stocks based on the long-term strategi...
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OneMain Holdings: A Dreman-Style Contrarian Call
05/13/2019 5:00 am EST
John Reese assesses stocks based on the investing criteria of many of the market's most legendary investors. Here, the editor of Validea looks at a financial services company based on the contrarian investing strategy of David Dreman.
OneMain Holdings (OMF) is a consumer finance company engaged in providing personal loan products, credit and non-credit insurance, and service loans. It is engaged in pursuing strategic acquisitions and dispositions of assets and businesses, including loan portfolios or other financial assets.
It offers optional credit insurance products to its customers, including credit life insurance, credit disability insurance, credit involuntary unemployment insurance and collateral protection insurance.
Market cap: PASS
Medium to large-sized companies (the largest 1500 companies) should be chosen, because they are more in the public eye. Furthermore, the investor is exposed to less risk of "accounting gimmickry", and companies of this size have more staying power. OMF has a market cap of $4,504 million, therefore passing the test.
Earnings trend: PASS
A company should show a rising trend in the reported earnings for the most recent quarters. OMF's EPS for the past 2 quarters, (from earliest to most recent quarter) 1.09, 1.23 have been increasing, and therefore the company passes this test.
EPS growth rate in the intermediate past and future: PASS
This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future.
OMF passes this test as its EPS growth rate over the past 6 months (2,360.00%) has beaten that of the S&P (-4.10%). OMF's estimated EPS growth for the current year is (72.34%), which indicates the company is expected to experience positive earnings growth. As a result, OMF passes this test.
P/E ratio: PASS
The P/E of a company should be in the bottom 20% of the overall market. OMF's P/E of 10.08, based on trailing 12 month earnings, meets the bottom 20% criterion (below 10.94), and therefore passes this test.
Price/cash flow (P/CF) ratio: PASS
The P/CF of a company should be in the bottom 20% of the overall market. OMF's P/CF of 6.12 meets the bottom 20% criterion (below 6.18) and therefore passes this test.
Payout ratio: PASS
A good indicator that a company has the ability to raise its dividend is a low payout ratio. The payout ratio for OMF is 0.00%. Unfortunately, its historical payout ratio is not available. Nonetheless it passes the payout criterion, as this is a very low payout.
Pre-tax profit margins: PASS
This methodology looks for pre-tax profit margins of at least 8%, and considers anything over 22% to be phenomenal. OMF's pre-tax profit margin is 14.72%, thus passing this criterion.
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