PDF Most Attractive Stocks for July 2019

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MONTHLY UPDATE

7/1/2019

Most Attractive Stocks for July 2019

20 Large/Mid Cap and 20 Small Cap Stocks

? Figure 1 shows 10 new stocks that make our July lists.

? Most Attractive Stocks have high and rising returns on capital

(ROIC) and low market expectations for future profits.

? This paper compares our analytics on a mega cap company to

other major providers. The Appendix details exactly how we stack up.

? Our Robo-Analyst technology, featured by Harvard Business

School, analyzes thousands of stocks to help pick the best.

Figure 1: Additions for July

Large Cap Additions

Ticker

Company Name

CHRW H HDS NUE RL WU

C.H. Robinson Worldwide Hyatt Hotels Corp HD Supply Holdings Nucor Corporation Ralph Lauren Western Union

Sources: New Constructs, LLC

Small Cap Additions

Ticker

Company Name

CRMT FIX FN LCI

America's Car-Mart, Inc. Comfort Systems USA Fabrinet Lannett Co, Inc.

Editor's Note: We will provide updated performance results on this portfolio soon.

Please see Appendix A for explanations of additions and deletions to the large and small cap lists.

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MONTHLY UPDATE

7/1/2019

The 20 Most Attractive Large/Mid Cap Stocks for July

We recommend that investors equal-weight holdings in all 20 Large/Mid Cap Most Attractive Stocks.

Figure 2: 20 Most Attractive Large/Mid Cap Stocks for July

Ticker

Company Name

ALV EAF CMA URBN DFS ALSN BKNG WU* BBY NUE* NVR RL* KMB CMI PGR H* FFIV CHRW* HDS* KMX

Autoliv Inc. GrafTech International Comerica Inc. Urban Outfitters, Inc. Discover Financial Services Allison Transmission Holdings Booking Holdings Inc. Western Union Best Buy Nucor Corporation NVR Inc. Ralph Lauren Kimberly-Clark Corp Cummins Inc. The Progressive Corp Hyatt Hotels Corp F5 Networks Inc C.H. Robinson Worldwide HD Supply Holdings CarMax Inc.

Consumer Cyclicals Basic Materials Financials Consumer Cyclicals Financials Industrials Consumer Cyclicals Industrials Consumer Cyclicals Basic Materials Consumer Cyclicals Consumer Cyclicals Consumer Non-cyclicals Consumer Cyclicals Financials Consumer Cyclicals Technology Industrials Industrials Consumer Cyclicals

* Addition to the Large/Mid Cap Most Attractive list in July Most Attractive Stocks are sorted by Risk/Reward rating

Sources: New Constructs, LLC

High-Quality Earnings

As of Last Twelve Months

Positive Economic

EPS

Rising ROIC (% point increase)

High-Ranking ROIC

(by Quintile)

$2.83 $3.23 $2.41 $1.29 $5.44 $2.88 $77.22 $1.41 $3.36 $4.71 $173.01 $2.99 $5.33 $7.98 $3.46 $3.38 $7.29 $3.56 $1.60 $2.62

1% 31%

3% 3% 1% 3% 3% 9% 1% 8% 3% 1% 3% 4% 1% 7% 1% 4% 3% 1%

2nd Top Quintile

2nd 2nd Top Quintile Top Quintile Top Quintile Top Quintile Top Quintile Top Quintile Top Quintile 2nd Top Quintile Top Quintile Top Quintile 2nd Top Quintile Top Quintile 2nd Top Quintile

Positive Free Cash

Flow Yield

23% 18% 16% 12%

9% 7% 6% 6% 6% 5% 5% 5% 5% 4% 4% 3% 4% 4% 4% 4%

Cheap Valuation

as of 06/28/19

Low Price-toEconomic Book

Value 0.9 0.2 0.8 0.6 0.7 0.8 1.4 0.7 1.0 0.6 1.0 1.1 1.0 0.9 1.1 0.8 1.2 1.2 1.2 1.5

Short MarketImplied GAP (years) Less than 1 Less than 1 Less than 1 Less than 1 Less than 1 Less than 1

2 Less than 1 Less than 1 Less than 1

1 2 Less than 1 Less than 1 Less than 1 Less than 1 6 5 Less than 1 6

Market Value ($mm)

$6,150 $3,341 $11,198 $2,229 $25,118 $5,807 $81,159 $8,567 $18,621 $16,794 $12,100 $8,868 $45,821 $26,985 $46,678 $8,019 $8,693 $11,519 $6,881 $14,430

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MONTHLY UPDATE

7/1/2019

The 20 Most Attractive Small Cap Stocks for July

We recommend that investors equal-weight holdings in all 20 Small Cap Most Attractive Stocks.

Figure 3: 20 Most Attractive Small Cap Stocks for July

Ticker

Company Name

LCI* CATO BKE BLDR FONR NCMI HSII FN* AMSF PDEX GLDD ZUMZ FUNC CVGI WINA MED MPX SAFT CRMT* FIX*

Lannett Co, Inc. The Cato Corp The Buckle, Inc. Builders FirstSource Fonar Corporation National CineMedia Heidrick & Struggles Fabrinet Amerisafe Inc. Pro-Dex Inc. Great Lakes Dredge & Dock Zumiez Inc. First United Corp Commercial Vehicle Group Winmark Corp Medifast Inc. Marine Products Corp Safety Insurance Group America's Car-Mart, Inc. Comfort Systems USA

Healthcare Consumer Cyclicals Consumer Cyclicals Consumer Cyclicals Healthcare Consumer Cyclicals Industrials Technology Financials Healthcare Industrials Consumer Cyclicals Financials Consumer Cyclicals Consumer Cyclicals Consumer Non-cyclicals Consumer Cyclicals Financials Consumer Cyclicals Industrials

* Addition to the Small Cap Most Attractive list in July

Most Attractive Stocks are sorted by Risk/Reward rating

Sources: New Constructs, LLC

High-Quality Earnings

As of Last Twelve Months

Positive Economic

EPS

Rising ROIC (% point increase)

High-Ranking ROIC

(by Quintile)

$1.20 $0.19 $1.26 $0.99 $2.63 $0.91 $1.45 $1.38 $2.33 $0.61 $0.37 $0.78 $0.61 $0.42 $6.95 $4.92 $0.66 $3.86 $3.99 $1.19

1% 2% 1% 3% 3% 2% 4% 2% 3% 4% 10% 2% 3% 5% 7% 78% 1% 4% 4% 3%

3rd 3rd Top Quintile 2nd Top Quintile 2nd 2nd Top Quintile Top Quintile Top Quintile 3rd 3rd 3rd 3rd Top Quintile Top Quintile Top Quintile 2nd 2nd 2nd

Positive Free Cash

Flow Yield

77% 32% 14% 11% 10%

9% 8% 7% 6% 6% 19% 8% 7% 5% 5% 4% 3% 3% 2% 1%

Cheap Valuation

as of 06/28/19

Low Price-toEconomic Book Value

0.2 0.6 0.6 0.8 0.4 0.5 0.7 1.2 1.0 0.6 1.1 0.8 0.6 0.5 1.2 1.6 1.2 0.8 0.7 1.2

Short MarketImplied GAP (years)

Less than 1 Less than 1 Less than 1 Less than 1 Less than 1 Less than 1 Less than 1

2 1 5 9 Less than 1 Less than 1 Less than 1 4 1 2 Less than 1 Less than 1 1

Market Value ($mm)

$238 $305 $852 $1,949 $139 $518 $573 $1,830 $1,229

$53 $700 $672 $140 $251 $651 $1,526 $527 $1,463 $576 $1,882

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MONTHLY UPDATE

7/1/2019

Most Attractive Stocks: Methodology

Stocks make our Most Attractive list because they have: 1. High-Quality Earnings based on: a. Returns on Invested Capital that are rising; and b. Economic Earnings/Cash Flows that are positive. AND 2. Cheap Valuations based on: a. Free-Cash Flow Yields1 that are positive; b. Price-to-Economic Book Value (EBV)2 ratios that are relatively low; and c. Growth Appreciation Periods3 (GAP) that are relatively low.

The above characteristics also qualify stocks for a `Very Attractive' or `Attractive' Rating, according to our Risk/Reward Rating system. Figure 5 shows our Risk/Reward Rating analysis, which we apply to the 3000+ companies that we cover. Stocks get a grade of 1 to 5 for each criterion, 5 being the worst and 1 being the best score. The overall score is based on the average score of all five criteria. Stocks must get an average score of 1.4 or below to be rated Very Attractive. Figure 5: New Constructs Risk/Reward Rating for Stocks

Sources: New Constructs, LLC

1 Free-Cash Flow Yields measure the % of the total value of the firm for which the Free Cash Flows of the firm account. The formula is FCF/Current Enterprise Value. 2 Economic Book Value (EBV) measures the no-growth value of the business based on its annual aftertax cash flow. The Formula for EBV is: (NOPAT / WACC) + Excess Cash + Non-operating assets ? Debt (incl. Operating Leases) - Value of Outstanding Stock Options ? Minority Interests. 3 Growth Appreciation Period measures the number of years, implied by the market-price, that a company will grow its economic earnings. This measure assigns a numerical value to the width of the moat around a firm's business.

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MONTHLY UPDATE

7/1/2019

Appendix A ? Additions and Deletions

Most Attractive Large/Mid Cap Stocks Deletions: MU - Stock price increased 15.7% since June report. WSM - Stock price increased 10.3% since June report. AMGN - Stock price increased 5.6% since June report. PCAR - Stock price increased 3.6% since June report. AZO - Stock price increased 2.9% since June report. SPR - Displaced by improved rank of other stocks.

Additions:

HDS - Stock price decreased 5.4% since June report.

CHRW - Addition by decrease in rank of other stocks.

H

- Addition by decrease in rank of other stocks.

NUE - Addition by decrease in rank of other stocks.

RL

- Addition by decrease in rank of other stocks.

WU - Addition by decrease in rank of other stocks.

Most Attractive Small Cap Stocks Deletions: RH - Stock price increased 27.4% since June report. GIII - Stock price increased 20.0% since June report. MC - Stock price increased 7.0% since June report. CORE - Stock price increased 1.2% since June report.

Additions:

FIX - Addition by decrease in rank of other stocks.

FN

- Addition by decrease in rank of other stocks.

LCI - Addition by decrease in rank of other stocks.

CRMT - New filing data on 06/21/19.

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