LONG ISLANDER NEWS • HUNTINGTON WEEKLY
JULY 12-18, 2018 - 11
b u s in e s s Free Cash Flow: Optimal Metric For Valuation Of Securities
By Peter J. Klein, CFA, CRPS, CAP pklein@hightoweradvisors.com
Many practitioners of wealth management spend most of their time focused on the macroeconomy, globally as well as domestically, which of course is important but is not the only analysis investors should be doing. Bottom-up, fundamental security analysis is quite important (and often used for large, asset sectors, calls as well as individual securities), and often forgotten by the average investor. Below, please find a quick refresher on the concept of Free Cash Flow (FCF) as a metric to focus on when looking for opportunities in the equity markets. Of course there is no magic bullet or secret sauce when it comes to investing, but there are a few tenets worth remembering:
• Being a contrarian, while often uncomfortable (as humans we prefer a herd mentality), is a time-honored way to invest – buy when others are fearful and sell when there is (unfounded) optimism. • Always insist on a margin of safety: What’s the downside? What can go wrong? • Be patient and wait for the “fat pitch” • Be leery of leverage Now these “FCF generators” are typically of the value style of equity investing, so don’t expect stories about their upside due to this new product or that new market opportunity (not disparaging growth style investing – just a different methodology). This is not the sandbox in which value-style investors are playing. They are focused, when looking for these types of opportunities, on the FACTS and with FCF we get just that. Consider the following: • It has been shown that the starting valuation of any investment is a primary driver of long term market returns.
• By utilizing the Free Cash Flow metric we are able to get to the true root of any enterprise. Earnings are not the best measure for there are many accounting nuisances that can cloud the true value of an enterprise. Free Cash Flow is calculated as follows: • Cash flow from Operations (the cash that the business has over the period – no accounting issues – simply cash) • MINUS any expenses that will be needed to maintain business for the next year • EQUALS Free Cash Flow • DIVIDE Free Cash Flow by Price to get Free Cash Flow Yield • The FCF Yield can then be compared to other investments to ascertain relative value By focusing on FCF an investor avoids the over-zealous assumptions for growth and is grounded in fact which allows for a foundation to determine if the business is under or over-valued. Thinking along these lines is essentially the same manner
implementation. Companies get the very best service to support a business function, while creating a more inclusive work environment with heightened morale for all their employees. MW: Linda, what is your role in the organization? LB: As development and engagement manager, my role is threefold: First, to promote the incredible abilities of our 400-person staff. Our employees are consistently recognized for delivering quality services, combined with their exceptionally positive work ethics and productivity levels. Second, I partner with civicminded organizations launching or expanding their corporate social responsibility programs as more diverse and inclusive workplaces. Third, I raise awareness of our mission through corporate, community and legislative events and initiatives. MW: What’s the next big event on TCS’s agenda? LB: Our upcoming NDEAM Champions Contest in celebration of October's National Disability Employment Awareness Month will recognize many amazing New York City and Long Island companies generously providing opportunities for people with disabilities to find gainful employment. MW: What is the benefit to TCS employees with disabilities? LB: There exists a huge disparity between the general unemployment rate of less than 4 percent, compared to the harsh reality of nearly 80-percent
unemployment among individuals with disabilities. TCS creates vital opportunities for more members of society to contribute their valuable skills. The competitive wages and benefits they earn from their hard work offers them financial independence, self-sufficiency and vastly improved quality of life. MW: My favorite part of our conversation was hearing your workers’ success stories. LB: One of the many that touches me most is a pair of our administrative employees. Work has provided a driving force for both individuals to demonstrate that they can collaborate extremely well together. They job-share due to the nature of their disabilities, and neither has missed a day of work in years; their supervisor raves that they
by which an owner of a private enterprise (rather than a public security) values his or her business and allows us, in the public markets, to think in the same manner – as a private investor.
Klein Wealth Management is a team of investment professionals registered with HighTower Securities, LLC, member FINRA, MSRB and SIPC & HighTower Advisors LLC a registered investment advisor with the SEC. All securities are offered through HighTower Securities LLC and advisory services are offered through HighTower Advisors, LLC. This is not an offer to buy or sell securities. No investment process is free of risk and there is no guarantee that the investment process described herein will be profitable. Investors may lose all of their investments. Past performance is not indicative of current or future performance and is not a guarantee. In preparing these materials, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public and internal sources. HighTower shall not in any way be liable for claims and make no expressed or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in or omissions from the.
Nonprofit Promotes Employment Of Those With Disabilities
By Mindy Wolfle info@longislandergroup.com
I recently had the pleasure of meeting Linda Berman, development and engagement manager of The Corporate Source (Thecorporatesource.org), through an outstanding connection-maker, my colleague Kenneth Renov, Esq. I was so impressed by the unique services provided by TCS, I decided to share my subsequent interview with Linda. MW: Please explain what TCS does. LB: TCS is a nonprofit organization dedicated to promoting the employment of people with disabilities and providing services leading to independence and fulfillment. Our outsourcing services include janitorial services, administrative, mail room and warehouse operations, porter and courier services throughout New York City, Long Island, Puerto Rico and the U.S. Virgin Islands, utilizing a workforce comprised of 83 percent direct-labor employees with disabilities. MW: What is the benefit to participating companies? LB: People with disabilities are an often-overlooked pool of talent to help companies achieve a successful bottomline return on investment, both financially and in terms of social responsibility. TCS shows business leaders that they can ‘do good while doing well’ by including those with disabilities in their workplaces. Our outsourcing model provides the full range of services from recruitment through
are the best employees she has ever had. Both employees have found financial independence through work, as well as the equally important camaraderie that work provides to us all. Their story is not unique. We'd love to hear more success stories from other employers highlighting similarly wonderful contributions to the workplace.
Mindy Wolfle is the president of Neptune Marketing LLC and chief marketing officer of Vishnick McGovern Milizio LLP. She is a board member of the Social Media Association and a member of Women Economic Developers of Long Island and Public Relations Professionals of Long Island. Her LinkedIn profile describes her as a marketing/public relations/social media executive, writer, editor, educator, connection maker, semiotician and do-gooder.