Category Archives: Equity Valuation

CVS is still undervalued if it acquires of Aetna!

Our valuation of CVS shows that it is significantly undervalued on its own while AET is somewhat overvalued.  The question then is whether it would still be attractive after the acquisition is completed.

As shown in the lower left graph below, CVS has been valued consistently between 75% and 125% of the market’s Payback over the last two decades.  At $70, the stock is undervalued by 71% (VR) assuming estimated EPS of $6.42 for 2018.  The calculated range is shown in the lower right graph compared to the actual high, low and close.

The fact that it is undervalued is due both the uncertainty of Amazon’s interest in healthcare services as well as CVS’ role as acquirer.


By the same analysis[1], Aetna ($178) is only modestly overvalued by 12% (VR).  This is a small premium for a takeover target but not uncommon.


The next question is what would be the merged company’s Valuation Return, or Risk (VR).

By adding the VR adjusted Market Caps of each company we get an Adjusted Market Cap total which is 34% higher than the current Market Cap of CVS and AET combined.



CVS 1,005 $70 $ 70,350 +71% $ 120,299
AET 325 $178 $ 57,850 -12% $ 50,908
TOTAL     $ 128,200   $ 171,207 +34%

If the acquisition price of $207 is used, the NET VR is reduced to +24%, still an attractive value.

(c) 2018 Robert L. Colby

[1] For an explanation of Corequity  analysis, please refer to

Click here to access Corequity Analysis on over 400 US equities

Corequity Results since Inception[1]

Corequity has been screening its equity universe since 2004. The monthly results shown below cover 13 years, from September 2004-2017 The Undervalued Screen has achieved an average annualized gain over the S&P 500 of 5.20% while the Overvalued underperformed by 2.76% for a spread of 7.95% pa.

13 yrs relative to univ

While this may not seem like much to some, it is enormous. This chart shows what the actual gains would have been on an investment of $100 over the period.  The Undervalued Screens produce a return that is over 5.5 times that of the Overvalued.

$ return 13 yrs

The graph below shows the relative performance of the Screens[2] compared to our universe of stocks[3].

(c) 2017 Robert L. Colby

[1] For background please refer to . For explanation of methodology please refer to

[2] Undervalued Stocks are in the highest quartiles of Valuation Return and the ratio of Normalized Earnings (MPEPS) to Estimated Earnings (EPS). Ovevalued Screens’ criteria are the opposite.

[3] Our universe most closely tracks the equal weighted S&P 500

Short Term Results (16 months)

The performance of the screens have been particularly consistent since June 2016 as the graph below shows. The Undervalued have outperformed our Universe by 31% while the Overvalued underperformed by 19% for a spread of over 50% in 16 months.

16 mos rel s&p.png

Analysis of Short Term Results: Undervalued

The following tables on sectors and stocks show which were the largest contributors to these results.  The tables show the sum of the Relative Strength (to the S&P 500).


Here we can see that the major contributors to the superior performance of the Undervalued Screen were Technology, Industrial and Consumer Cyclical.

The top and bottom Undervalued stocks which contributed the most (and least) are shown here: ANALYS UV

Analysis of Short Term Results: Overvalued


The Sectors which contributed the most to the underperformance of the Overvalued were Energy, Financial and Basic Materials.  The individual companies in the top and bottom 10 are as follows:


These attribution tables do not answer the question of why these results have been so consistent in the last 16 months.

A simple explanation would be value vs growth but this doesn’t hold up as the underlying principal of Corequity analysis is to put a price on growth specific to each company.  This is further supported by the recent relative performance of the ETFs SPYG and SPYV, being the Spider ETFs for S&P 500 Growth and Value stocks.


This bears no resemblance to the UV/OV screen graph for the same period especially  if the same scale is used.

SPYV vs SPYG 70-140

(C) 2017 Robert L. Colby

Performance of Undervalued outperform Overvalued by 28.4% since June last year

In the last 9 months the Undervalued Screen has outperformed the S&P 500 by 21.2% while the Overvalued underperformed by -7.2%.  The absolute numbers were +33.8% vs +5.4%.

9 mos

Stay tuned for the a look at what Sectors, Industries and equities contributed to the divergent returns.

The graphs below show the performance of the two screens since inception on September 30th 2004.   Relative to the Corequity universe, the respective annualized returns are +2.68% pa vs -3.77% for a spread of over 600 basis points per annum.

The average return on the Universe is +2.04% pa which is more in line with the Equal Weighted S&P 500.

uvov graphs

Here is a look at the returns over the last year as well as since inception.


(c) 2017 Robert L. Colby

November Results for Screens: Undervalued outperform S&P by 6.5% and 2.3% more than our universe’s average

Our universe of stocks outperformed the S&P by 4.2% last month while the  Undervalued Screen gained 6.5% relative.  The Overvalued were equal to the universe’s return of 4.2% mainly due to the superior performance of the Energy stocks which numbered 15 out of 26 in the screen.

The Overvalued ended the month on a strong note gaining 2.4% in the last week.

Changes and Updates to November Screens

There were huge gains and losses for those stocks entering or leaving the screens from October  31st to November 30th.
Those leaving the Undervalued averaged close to +14%.  Those leaving the Overvalued were down 7%.
The 7 stocks entering the Overvalued screen increased an average of 29% in the month, an astonishingly high number.  At the beginning of the month, they were fairly valued with an average of -1.8% and a range of -12 to +11%.

(c) 2016 Robert L. Colby

For the current Screens, contact

12 Years Results: Undervalued Screens outperform Overvalued by 5.5% per annum

An index for the monthly screens for value is created by linking the following months’ average returns, excluding income.  The Undervalued Screen index outperformed the S&P 500 by 395 basis points per annum while their counterparts, the Overvalued Screen index under-performed by the S&P by 158 basis points pa.  The spread between them was 552 basis points

The index for our universe of stocks increase by an 193 basis points pa so the performance relative to that standard was +198 and -344% basis points respectively.  The reason for the superior performance is most likely due to the unweighted universe vs the market weighted index.

10 Year Ranking among US Equity Funds*

To give an indication of how the returns on the Corequity Screens compared to managed accounts, we compared the 10 year returns to a universe of over 400 US equity funds as reported by the Globe & Mail for September 30th.  The Undervalued’s 10 year average was 8.51% vs 4.41% for the Overvalued.  The Undervalued would have ranked in the 90th percentile (1st quartile) while the Overvalued would have been in the 24th or 4th quartile.   Here the spread between them is 66 percentiles!
The index for our universe of stocks increase by an 193 basis points pa so the performance relative to that standard was +198 and -344% basis points respectively.  The reason for the superior performance is most likely due to the unweighted universe vs the market weighted index.


* Globe & Mail US equity funds with 10 year records.