Sometimes, he writes, it’s important to take a step back and pay attention to those fundamentals, even when the technical indicators are all flashing red.
“I typically focus on price-to-earnings ratios versus that same stock's own normalized level more than most other items," Price wrote recently on Real Money. "What do you do, then, when earnings are way down but you like the long-term prospects? You switch to other, more relevant metrics. Doing that can allow you to own great companies with temporary problems."
The approach "is how I made so much money with retailers during government-enforced store closures in 2020. You needed to ignore losses, and incalculable P/Es, which were not indicative of those companies' true earnings power.”
For a more contemporary example, Price takes a look at Hyster-Yale Materials Handling (HY) - Get Hyster-Yale Materials Handling, Inc. Class A Report.
“HY should benefit greatly from supply chain squeezes as they sell products desperately needed to move merchandise along effectively," Price noted
In May 2019, pre-COVID-19, HY had already seen 264 separate insider buys at an average price of $63.22. Those trades represented a greater than $15 million vote of confidence in the company's prospects. As of Oct. 21, we were able to buy at more than $14.50 a share cheaper than those insiders did.”
But of course this wouldn’t be a Paul Price column without a serious dive into the numbers. “What alternative metrics did I use to identify HY as a great buy right now?” Price writes. “I analyzed price to book value (P/BV) and current yield versus historical levels at HY's previous most overpriced and underpriced moments.”