Home
>
Stocks & Mutual Fund
>
Stock Valuation using the SMP Model

Stock Valuation using the SMP Model

Disclaimer: Please note that I do not necessarily purchase, own, or partake of any of the securities or other financial instruments mentioned in this article. I also do not take any responsibility for any actions resulting from any actions taken by anyone who reads this article. You are responsible for your own finances - no one else. Do your yown due diligence when researching financial matters.

The SMP (Stock Market Plus) Stock Valuation Model is founded on the idea that in any market, on average, an investor will beat the market by purchasing undervalued securities at bargain prices. The model suggests building a diversified portfolio of securities that will (theoretically) surpass their current value even in a dismal bear market over a period of 10 years. The SMP Model is extremely sensible. It takes a stock's NTA (Net Tangible Assets), factors in projected growth, and flavors the results with a little market pessimism for good measure. The model is simple enough, but requires research that you can't obtain with your average stock screener.

How do I know that the SMP Model works? In early 2004, tired of my losses that arose from trying to play the market's short-term ups and downs, I came up with an idea for long-term investing. I reasoned that a security's intrinsic value was its current NTA per share, plus its projected Earnings Per Share (EPS) growth, year-over-year going forward, tempered by the realistic possibility of an extended bear market. Those stocks that could come out ahead of their current prices over time, even in a bad market, were the ones that I wanted to consider. I cut the projections off at ten years, because that provided me with a realistic long-term timeline to watch the stocks under consideration. This idea about stock valuation is probably not unique, and I do not claim to be the first person to ever think of stocks in this light. What I like about the model is that it takes away the guesswork. You plug in the numbers, and let the projections speak for themselves.

What kind of performance has the Model returned? In February, 2004, I started tracking a portfolio of 10 stocks, selected by the SMP Model. By April, 2005, that portfolio had produced over a 17% gain, in a little over a year. Now, again, if you're looking for 200% gains, go try Vegas or the racetrack. Realistic, long-term gains are slow and steady, and require diversification of assets for self-preservation. By, comparison, the stock markets have been pretty even (zero gain) over that time, with the S & P outperforming the Dow and Nasdaq.

What kind of stocks does the model like? Well, I'll share some that it doesn't like...Walmart, Microsoft, Gateway, EBAY, Oracle...some real heavyweights. Now, for ones that the SMP Model projects to be worth more than their current prices in ten years...Providian, Washington Mutual, LJ International, Ford, General Motors. I'll give you a larger list later. But, now, I want to give you the formula for the SMP Model so you can build a sensible portfolio today...

First, a couple of definitions:

NTA = Net Tangible Assets = (Total Assets - Intangible Assets - Liabilities)

EPS = Earnings Per Share = Total Net Income/Outstanding Shares

EPS(0) = EPS(current year) = projected EPS (current year) * discount rate (I use .12)

GRW = Projected EPS Growth Rate (use 5-yr or 10-yr if available)

Now here's the formula...

SMP(value) = current NTA/share + EPS(0) + [EPS(0) * (1 + GRW * discount (.12))](= EPS(1)) + [EPS(1) * (1 + GRW * discount (.12))](= EPS(2)) + [EPS(3) + EPS(4) + ... + EPS(10)

OK, the formula's a little nasty, but if you plug it in to a spreadsheet, it works quite well. Just so you know that you're on target with your math, here's a sample computation for (WM) Washington Mutual (these numbers may be slightly different than current values):

NTA = 13.951 (in billions) Shares = .873 NTA/Share = 13.951/.873 = 15.98 (that means WM has current NTA of $15.98) EPS = 3.70 GRW = .10 Discount rate = .12 (using such a high rate builds in the possibility of a bear market/inflation)

EPS(0) = 3.70 * (1 - .12) = 3.26

EPS(1) = 3.26 * (1 + .10 - .12) = 3.19

EPS(2) = 3.19 * (1 + .10 - .12) = 3.13

...

EPS(10) = EPS(9) + (1 + .10 - .12) = 2.71

NTA/Share + EPS(0...10) = $45.76

So, we arrive at a SMP Model value for WM of $45.76, with the current share price around $39. Thus, WM would pass the SMP test, and I would recommend this stock as part of a diversified portfolio.

As a side note, I am not seeking any kind of contribution or fee for this knowledge. I hope it benefits you as I think it will.

Prosperous investing to you!

http://www.stockmarketplus.com

I am in my mid-thirties and have a Bachelor's Degree in Accounting, with a minor in Decision Science. I entered the accounting field ten years ago, when I started working for a software company, where I stayed seven years. I am now the Inventory Control Manager for a large winery. My experience in the financial markets includes both personal and business endeavors.

Mokena prom limo .. Lockport Chicago limo O’Hare

In The News:

Tech expert Kurt “CyberGuy" Knutsson urges you to use Apple’s App Privacy Report to see what your apps are really up to.

Tech expert Kurt “CyberGuy" Knutsson talks about how to smoothly transfer your data from an old laptop to a new one using cloud storage or external drives.

Kurt the CyberGuy offers tips to safeguard your personal information as scammers become more sophisticated with scam texts and other methods.

WeRide's unmanned electric delivery van, the Robovan W5, has 194 cubic feet of cargo space and can carry payloads up to about 2,205 pounds

Kurt the CyberGuy recommends deleting 16 browser extensions immediately in response to a report saying more than 3.2 million web users were affected by a security breach.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

A robotics firm in China claims a robot has performed the world's first humanoid robot front flip, which is significantly more difficult than a backflip.

A digital ID may be even more secure than a physical ID. Storing your driver's license in your Apple Wallet is an ideal solution for commuters.

A cybersecurity firm has shed some light on just how common tax scams have become. Kurt the CyberGuy offers his advice for how to protect your refund.

Lifesize Plans offers immersive walk-throughs that allow customers the opportunity to tour a home's design before construction actually begins.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

A man invested $4 million in bitcoin and lost it all with a single click when he was targeted by a vishing scam, which uses phone calls to trick people.

Expandable's Touchdown is a designer trailer that promises a luxury off-grid living experience and unfolds into a home in about 15 minutes.

Major employee screening company data breach affects 3.3 million people. Tech expert Kurt “CyberGuy" Knutsson explains what happened and gives five ways to protect your data.

Kurt “CyberGuy" Knutsson reveals mind-blowing tech that gives you sunlight on demand.

New malware "FrigidStealer" targets Mac computers. Tech expert Kurt “CyberGuy" Knutsson offers four ways to stay safe from infostealer malware.

Kurt “CyberGuy" Knutsson talks about how lab-grown muscles power a biohybrid hand for scalable prosthetics and research.

Reports of task scams have significantly risen in the past four years, according to the Federal Trade Commission. Kurt the CyberGuy offers some red flags.

iPhones have a hidden folder that eats up storage without you knowing it. Kurt the CyberGuy offers some tricks to free up storage on your device.

A recent ransomeware attack targeted Zacks, an American investment firm, and a cybercriminal claimed to have stolen records for millions of customers.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Researchers unveiled a new soft prosthetic hand that combines the natural coordination patterns of our fingers with the decoding of motoneuron activity in the spinal column.

Accidentally deleting a text message on your iPhone or iPad is not a problem if you still need the message. Apple has a built-in way to recover it.

Just two months into 2025 there have been numerous Mac malware threats targeting Apple laptops, ranging from infostealers to malicious software.

A self-driving electric bus powered by artificial intelligence has an electric powertrain for zero-emission operation and an automated drive system.

Stock Valuation using the SMP Model

Stocks & Mutual Fund