Application in the case studies

Now let´s show these steps in some case studies. First of all, we would like to start with an analysis of the great company, which is in our opinion undervalued. However, it is just a first look. Our balance sheet analysis, profitability analysis, and valuation analysis can truly reveal if we see here a big discount, if this company is healthy, or to avoid investing in its stocks.

During case studies here, we will analyze a company called Paypal and Alibaba, and AT&T, where we can see considerable discounts in their stock prices. However, we do not know if the company is undervalued or if the current decline is justified. Our starting point is to seek a company where we can see huge discounts. The massive discounts are often macro-driven (macroeconomic events) or micro-driven (due to a worsening outlook or some kind of problem) or both of them. We need to find a company where business is doing well and some macro events hit the stock price. Or we need to find a company that is having some troubles inside its own business, but there could be a great potential to resolve it in the future. We can consider it a temporary issue that will not significantly harm long-term growth.

Maybe you don’t like this principle, but the truth is that when you buy a high-quality stock at a big discount, you have already won and can prepare for great returns if your analysis is correct. However, the key point here is to set a portfolio of 10/20/30 amazing stocks to avoid analytical mistakes and lousy justification of some stocks, leading to “dead money” for years. Not every pick you do will be a holy grail.

Nevertheless, this makes sense to us: Nathan Rothschild, a 19th-century British financier and member of the Rothschild banking family, is credited with saying that “the time to buy is when there’s blood in the streets.


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