hi i'm jimmy in this video we're looking
at some improvements that we're making
to this channel specifically around how
we value stocks so really these are
going to be improvements for our stock
analysis videos and how we'll be able to
quickly value stocks much easier much
quicker so as many of you may know i'm a
huge fan of discounted free cash flow
when it comes to trying to value a
stocker when it comes to trying to
identify an ideal place to buy a good
company but two common questions that i
get
for discounted free cash flow is one how
do we do this entire calculation and two
where do we get the numbers from now i
did a whole video on how to do a
discounted free cash flow calculation
how to come up with all the numbers how
to calculate each number why each number
is important now discount free cash flow
is a
true and tested way to value stocks it's
been around for a long time and if
you've ever read books about let's say a
guy like warren buffett well we've
certainly come across his loyalty to a
valuation method like discounter free
cash flow but again the issue is coming
up with these numbers and understanding
how the calculations performed and
ultimately how we can use the results of
the calculation to help improve our
investment portfolio so with that being
said here's what we're working on so
over in our private investing community
we do these weekly live streams
one of them where we analyze we do a
quick calculations of discount free cash
flow and uh the members of the community
throw out companies at us and we try to
rattle off as many
quick calculations as we can but we keep
getting asked if we can create a way for
you to do your own quick calculations
ideally in a way that's quick and easy
right now i'm i have paid data sources
that allow me to get analyst estimates
and those aren't often readily available
without paying a lot of money to get
them
so
the goal here is to see if we can come
up with a quick
way to calculate fair value for stock
using discounted free cash flow or some
other valuation method to see if it's
worth doing a deeper dive on so what
i've been doing is i've been working
with some data providers like s p or
bloomberg or morningstar
to see if we can get analyst estimates
to see if we can get all the data points
that we would need to make analyzing a
stock very quick and very easily i don't
want to do just this kind of free cash
flow price to book price to tangible
price to earnings enterprise value to
ebitda all the different ways to value
stocks so we can value pretty much every
stock out there so basically what we're
building is a website where we punch in
a ticker and out kicks an answer whether
that be discount free cash flow what is
the stock worth today we don't like the
way they count maybe there's not that
many analysts covering that particular
stock then we can use revenue numbers
and get the discounted free cash flow
that way if that doesn't work we could
do the dividend discount model and a
price value at eved evidence enterprise
value to revenue there's all different
ways to do it and the website will be
set up in such a manner that allows us
to
switch easily from one valuation method
to another so while we're getting ready
to start build the website what i've
done is i've put together an excel
template that allows us to share this
with our web developers to let them get
an idea of where we're trying for the
website where we're trying to get the
website to go now it won't look exactly
like this i am not a graphic designer
i'm much more of a numbers guy i'm
assuming graphic designers and web
developers could do a much better job of
building the website for us
but
the concept remains the same so just as
a quick example when we look at a stock
like johnson johnson well if we use the
required rate of return of seven and a
half percent that's a number i've been
using recently come back to this in a
second well looks like the fair value
for johnson johnson's stock is about 212
bucks per share right now this is higher
than the current stock price which is
why our fair value is green here since
it looks like there could be some upside
potential for this particular stock now
this particular calculation is using
analyst estimates for free cash flow
that's what these numbers down here are
and we can even see how many different
analysts are contributing to each of our
numbers so this could be useful
information if we ever ever want to get
a deeper understanding of where the
numbers are coming from but perhaps we
don't care perhaps we just want to get
through a bunch of companies quickly
maybe we prefer to look at visa so we
punch in visas ticker up there well this
one looks to be about fairly valued we
got a fair value of about 200 bucks per
share right now the stock's trading
about 196. okay how about apple well
apple stock is the fair value is coming
in about 147 which is slightly below the
current stock price so it looks like
apple could be slightly overvalued okay
next one how about we look at 3m so we
punch in 3ms ticker and it looks like
there could be some upside in 3m stock
based on analyst estimates now we'll
also be able to click on this button up
here or somewhere on the website that
will allow us to pull down a chart that
looks something like this this allows us
to see our target price based on our own
calculation using analyst estimates in
this case compared to the current stock
price so the stock price over the past
year maybe the chart is one year three
or five years it'll be fairly
customizable okay now this target price
assumes that we're using a required rate
of return of seven and a half percent
but i very much understand that many
people might not want a required return
of seven and a half percent what if we
wanted to change that of course we could
change that right in this area here we
adjust that number and just like that
all of our calculations would change
going forward but another feature that
we're going to be adding and we've
already started using this on our
private live streams uh on our weekly
friday live streams and that is that you
click this button here and just like
that we get the fair value calculation
what the fair value calculation would
have been had we picked different
required rates of returns this could be
a great way to see how much of an impact
your required rate of return has on the
fair value of the stock but it also
allows us to get a quick glance at what
the potential return of that stock could
be now we're also including the weighted
average cost of capital as one of our
numbers here because this is a marked
much more textbook number for most
analysts to use when trying out trying
to come up with a fair value of a stock
and this number changes from one stock
to another for example let's switch over
to amgen so now as amgen's information
loads up and we'll leave our additional
required rate of return exposed but we
can see that amgen's cost of capital is
just 6.3 percent and this looks like
this could be undervalued as well well
what about when we switch back to a
stock like apple well apple stock looks
like their required rate of return their
weighted average cost of capital is 9.4
percent and that's because they actually
have a higher cost of equity and the
more and then they have a lot more
equity than amgen has
but at this price again it appears that
apple stock is overvalued so hopefully
we can all see how powerful this website
is going to be and how much
benefit it can add to each of our
investment portfolios now of course i
also plan on having financial statements
up on the website competitive analysis
and a whole lot more the goal is to
build an all-in-one investment research
website where we can value stocks
quickly and easily track our investment
portfolios analyze companies research
competitors find new good investments
that help improve our overall investment
returns now i'm hoping to have the first
iteration of the website
up and running in within the next six
months and we plan on continuously
adding to it and trying to improve it
and trying to make investing
easier and simpler to do with a more
thorough understanding of what we're
doing and why we're doing it now to get
access to this website you can sign up
to our private investing community i
will leave a link in the description
below to that sign up page and at some
point we are planning on upping the
prices for that membership but for
anybody who signs up now we are locking
in the prices so if you were to sign up
today the prices won't go up
ever and once you sign up you'll be able
to not only access the website once it's
up and running and built but you'll also
be able to join us on our weekly
investment live streams and chat with us
over in the private investing community
we're doing about three investing live
streams per week right now so hopefully
you can join us over there and if you do
please let us know any ideas you might
have to make the website even better and
even more usable to help us all improve
our investment portfolios so again i got
a link right here and in the description
below to sign up for the website and to
join the private investing community and
thank you so much for sticking with me
all the way to the end of the video i
really do appreciate it thank you and
i'll see in the next video