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Difference Between Value Stocks And Growth Stocks

Analysts like to separate stocks into two categories: value and growth. What is the difference between value stocks and growth stocks, and which style provides better returns? There is no exact definition explaining the difference between value stocks and growth stocks, but each has its own distinct characteristics. In general, value stocks have low price ratios and growth stocks have high price ratios. Value stocks as a whole have been shown to outperform growth stocks over time. Future Expectations The low price ratios of value stocks are a result of investors being cautious about the future of the underlying companies. Similarly, the high price ratios of growth stocks are a result of investors being excited about the future of the underlying companies. While discussing mutual fund investing using either growth or value stocks, Fidelity says the following : Growth funds focus on companies that managers believe will experience faster than average growth as measured by revenues, earnings, or cash flow. The goal of value funds is to find proverbial diamonds in the rough; that is, companies whose stock prices don’t necessarily reflect their fundamental worth. In the stock market, companies are valued based on future expectations. Wonderful vs. Weak If a company’s growth begins to slow down or its profits start to decrease, the result will be a lower share price. Value stocks are typically companies with recently poor operating results and negative outlooks. The weak performance could be due to macroeconomic events or company specific challenges. It could be a temporary setback or a major loss of market share. If a company is growing and its profits are increasing rapidly, the result will be a higher share price. Growth stocks are typically companies with recently phenomenal operating results and bright futures. The wonderful performance could be due to a rising tide in a particular industry or great management of a specific company. If growth stocks are “wonderful” and value stocks are “weak”, how can value stocks be better investments than growth stocks? Value Premium It turns out that human nature causes value stocks to provide better long-term returns than growth stocks. People get too excited about growth stocks and too afraid of value stocks. While discussing the recent trend of investors moving away from value opportunities, Morningstar’s Ben Johnson said : What we’ve seen historically is that it’s exactly this sort of capitulation, this sort of behavioral function that may actually lead to the existence, the creation, the persistence of the value premium. Value exists because there are suckers on the other side of the poker table willing to take the flipside of the value bet. They are betting on growth or something else. Real, true, strong hands at that poker table, in all likelihood will continue for many years to come, to reap the benefits of that value bet, assuming that they are strong hands. The optimism towards growth stocks makes them overvalued. The pessimism toward value stocks makes them undervalued. Investors become overly confident about a growth stock’s future and overly scared about a value stock’s future. Herd Behavior Through a phenomenon called herd behavior, human nature causes a gap to occur between the value of a stock and its price. Herd behavior says that “individuals in a group will act collectively without centralized direction.” In Thomas Howard’s book, Behavioral Portfolio Management , he talks about how following the crowd is an evolutionary trait. It was beneficial at one point but now does more harm than good, especially in investing. Howard says: Doing the same thing as everybody else, the definition of social validation, also made sense thousands of years ago when life was full of danger. Since we lived in small groups then, we depended on others to sense danger and react instinctively. You didn’t want to be the slowest member of the group when fleeing the tiger. In contrast, today we frequently want to take positions different from the emotional crowd as a way to harness the price distortions resulting from collective behavior. Because the stock market is nothing more than a group of individual investors, herd behavior is a common occurrence. No investor wants to be left behind. As prices start climbing, everyone wants to jump on board. This results in the high valuations of most growth stocks. Once prices start falling, investors dump the underperforming stocks in mass. This results in the low valuations of value stocks. It’s important to refrain from following the crowd and to avoid investing in overvalued stocks rather than undervalued stocks. The Difference Between Value Stocks and Growth Stocks A summary of the difference between value stocks and growth stocks is: Value stocks are undervalued, out-of-favor companies with recently poor operating performance and slowing growth. Investors overreact to these stocks and value them lower than they should be. Growth stocks are overvalued, “hot” companies with recently great operating performance and rapid growth. Investors overreact to these stocks and value them higher than they should be. Understanding the difference between value stocks and growth stocks will allow investors to profit greatly over time.

The V20 Portfolio: Week #31

The V20 portfolio is an actively managed portfolio that seeks to achieve an annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read the last update here . Note: Current allocation and planned transactions are only available to premium subscribers . Over the past week, the V20 Portfolio declined by 5% while the SPDR S&P 500 ETF (NYSEARCA: SPY ) dipped by 0.3%. Portfolio Update It would appear that the saga of Dex Media (NASDAQ: DXM ) (OTCMKT: OTCPK:DXMM ) will soon come to an end. It was my hope that the management could come to an amicable agreement with lenders given the company’s massive cash flow. Unfortunately, we cannot control the outcome of the negotiation and according to the most recent press release from company, an agreement has been reached with lenders, the outcome being that equity holders will be completely wiped out. Evidently the thesis has failed to play out, but the risk of total loss was something that we accepted all along. For myself, what’s troubling is that the management voluntarily defaulted for reasons that are still unclear to me. When the company defaulted in 2015 by withholding an interest payment, the company still had plenty of cash and was on track to generate more. What really boggles my mind is that the management was somehow able to gain support from both senior and junior debt holders. To put things into perspective, the management withheld $8.9 million of cash interest back in September from junior debt holders and pushed the company into default. Now that negotiations are finished, junior debt holders will get wiped out save a $5 million payment and warrants on the new equity. Clearly it was absolutely not in their interest to consent, yet the improbable has occurred. In any case, Dex Media will likely be a write-off unless a miracle happens in court. While this investment has been a failure, the impact on the overall results of the V20 Portfolio has been minimal, which is one of the reasons why the investment was attractive in the first place, as the downside was limited when the position was viewed in the context of the whole portfolio. The V20 Portfolio began the year with just 0.5% of assets being allocated to Dex Media. On to better news. Our sole insurance company reported Q1 earnings and as expected, the company continued to demonstrate strong growth and profitability. The market reacted favorable as well, boosting the stock by roughly 10% since earnings as of close on Friday. Turning our attention to Conn’s (NASDAQ: CONN ), the company recently reported April sales data, meaning that now we have all the sales numbers for Q1. Overall, sales grew 8% year over year from $296 million to $319 million. While growth will continue to add value in the long-run, the company must show some improvement in the credit segment in the near term to get rid of the negative sentiment surrounding the stock. Spirit Airlines’ (NASDAQ: SAVE ) performance mirrored the sustained pessimism in the airline industry, shedding 6.5%. In comparison, AMEX Airline Index declined 3.9%. This has occurred despite Spirit Airline’s leading profitability and growth potential. Due to our earlier trim, the position has declined to less than 10% of the overall portfolio, hence more capital will be allocated to Spirit Airlines. Click to enlarge Disclosure: I am/we are long CONN, SAVE, DXMM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Spark Energy’s (SPKE) CEO Nathan Kroeker on Q1 2016 Results – Earnings Call Transcript

Spark Energy (NASDAQ: SPKE ) Q1 2016 Earnings Conference Call May 05, 2016 11:00 AM ET Executives Andy Davis – Head, Investor Relations Nathan Kroeker – President and Chief Executive Officer Georganne Hodges – Chief Financial Officer Analysts Mike Gyure – Janney Montgomery Scott Dan Fidell – U.S. Capital Advisors Operator Good morning, ladies and gentlemen. Welcome to the Spark Energy, Inc. First Quarter 2016 earnings conference call. My name is Andrew, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes, and this call will be posted on Spark Energy, Inc.’s website. I would now like to turn the conference over to Mr. Andy Davis, Head of Investor Relations for Spark Energy, Inc. Please go ahead. Andy Davis Good morning and welcome to Spark Energy, Inc.’s first quarter 2016 earnings call. This morning’s call is being broadcast live over the phone and via webcast, which can be located under events and presentations in the Investor Relations section of our website at www.sparkenergy.com. With us today from management is our President and CEO, Nathan Kroeker; our CFO, Georganne Hodges; and our Executive Vice President of Retail, Jason Garrett. Please note that today’s discussion may contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Management may make forward-looking statements concerning future expectations, projections of our operations, economic performance, and financial condition. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we give no assurance that such expectations will be realized. We urge everyone to review the Safe Harbor statement provided in yesterday’s earnings release as well as the risk factors contained in our SEC filings. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During this morning’s call, we will refer to both GAAP and non-GAAP financial measures of the company’s operating and financial results. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to yesterday’s earnings release. With that, I’ll now turn the call over to Nathan Kroeker, our President and Chief Executive Officer. Nathan Kroeker Thank you, Andy. I’d like to welcome our shareholders and analysts to Spark’s first quarter 2016 conference call. We’ve had a phenomenal quarter and we’ve got some exciting news on the M&A front I want to talk about. And then I will turn he call over to our CFO, Georganne Hodges, to provide some detail on those financial results. We will then conclude with questions from our analysts. Yesterday we announced two significant acquisitions that will nearly double the size of our business to approximately 750,000 RCE. Combined, these two deals will provide us with access to two new states and 24 new markets and approximately $30 million in annual adjusted EBITDA. I will discuss the two transactions in more detail after I talk about the first quarter, which was a record setting one. We earned $21 million in adjusted EBITDA and $40 million in retail gross margin as we continue to see expanded unit margins in both electricity and natural gas driven by the current soft commodity environment. In addition, we saw increased volumes in our electricity segment primarily as a result of CenStar and Oasis acquisition in July of last year. As we previously signaled, our RCE count for the quarter remain flat at 415,000. Our attrition improved to 4.3% for the quarter and continues to trend favorably as we are seeing the benefits of our focus on sales quality. This improvement in attrition combined with our higher quality customer adds allowed us to replenish our attrition at a significantly lower cost than in the past. As you saw last night, Spark announced the dropdown acquisition of Major Energy from our parent National Gas & Electric. Major Energy is a retail energy business with approximately 210,000 RCE serving electricity and natural gas customers in eight states. This acquisition adds 15 new utilities to Spark’s current footprint. Major has a very strong management team that has built a very efficient and profitable business and Spark look forward to working with them to share ideas and grow this business. The purchase price is estimated to be $75 million with $40 million payable to NG&E in Spark stock at closing, $5 million in assumed liabilities and an estimated $30 million in earn-outs that are subject to a variety of performance metrics over the next three years. This transaction is back-to-back with NG&E’s acquisition of Major, including the earn-out mechanism that de-risks the transaction by lowering the total purchase price and protecting the EBITDA multiple in the event certain performance metrics are not met. Also announced yesterday, Spark has entered into a purchase and sale agreement for the acquisition of all retail business operations of Provider Power LLC representing approximately 125,000 electricity RCEs in Maine and New Hampshire both of which are new states to Spark and include nine new utilities. The purchase price is $28 million plus a potential $4 million earn-out that is subject to performance metrics for the first year. While the Provider transaction was a direct purchase from the third-party sellers, Spark is working closely with its founder in financing the purchase price payable at closing through the issuance of 900,000 primary shares to Retail Co. LLC for a total of $18 million in cash. While our record first quarter results and anticipated midyear closing of two significant acquisitions, renders our earnings guidance somewhat outdated at this point. I will simply say that we are highly confident in achieving our initial 2016 guidance range of $44 million to $48 million. We are currently reevaluating our guidance to reflect the positive changes we’ve discussed. As previously announced, our first quarter dividend of $0.3625 per share will be paid on June 14. And as we’ve stated in the past, we expect to pay this quarterly dividend on a go-forward basis. Thanks for your attention. And with that, I will now turn the call over to Georganne for her financial review. Georganne? Georganne Hodges Thanks, Nathan, and good morning, everyone. The first quarter was indeed a record setting one for us. We are very proud of our results as well as the two M&A transactions that we signed during the quarter. Our adjusted EBITDA surpassed $21 million compared to $10 million last year, as both of our mid-2015 acquisitions continue to contribute above our expectation. Our gas and power unit margins expanded during the quarter, as we continue to optimize our supply cost in this low commodity price environment. And although the weather continue to be mild, our power volume increased of almost 60% year-over-year combined with the strong margins we just talked about lead to a record growth margin of $40 million for the first quarter. On the customer acquisition side, we maintained a flat customer portfolio of 415,000 RCEs on $2.3 million of spend. This optimized spend result was achieved through our declining attrition rate of 4.3% combined with our improved commission structure with our vendors, which is volume based. G&A expenses were up 2.7 year-over-year, increased customer billing and care cost on our 35% larger portfolio are the primary driver of that but we also had to increase our CenStar earn out due to CenStar’s strong performance. That earn out winds up at the end of June this year. The increased costs were offset by bad debt that has returned to normal levels of less than 1% of our revenue as well as the expected savings on our MSA with Retailco that we talked to you about last quarter. In April, our strong rental results allowed us to completely pay off our working capital loan and begin to build cash. In conjunction with the acquisition that we just announced, we are in the process of increasing the size of our working capital facility from $60 million to between $90 million to $100 million to accommodate those acquisitions and we’re hoping to have that rapped up by the end of the month. That is all that I have, so back to Nathan. Nathan Kroeker Thanks, Georganne. As you can see, we’ve had a great start to the year in terms of profitability, sales quality, and attrition improvement, and we are very pleased with the way CenStar and Oasis continue to perform. We do have our work cut out as we move towards closing and integrating our two new acquisitions in the third quarter and hopefully by this time next quarter, we will be giving you an early indication of how they are performing. With that, we’ll now open up the line for questions from our analysts. Operator? Question-and-Answer Session Operator [Operator Instructions] We have one question from the line of Mike Gyure from Janney. Your line is open. Mike Gyure Yes. Good morning. Can you guys talk a little about the metrics you’re using for the acquisitions? I guess big picture when I look at it looking at the purchase price I guess all-in if you include all the earn outs and everything and your EBITDA, it seems like a pretty low multiple which obviously is a good thing but I guess I’m surprised or am I missing anything when I’m taking a look at that? Georganne Hodges Mike, that’s a good question. And the way we look at it is, we are issuing 2 million shares for major 900,000 shares for provider. So 2.9 million shares call it $60 million and we’re buying $30 million of annual EBITDA. So upfront, we are only looking at a two multiple. When you add in the earn outs that are in both transactions, that total purchase price goes up to our estimated $107 million, so that gets you to about 3.5 multiple. In terms of other metrics of these businesses, I mean the earn outs are tied to EBITDA and customer count in the case of major and some gross margin target and customer count in the case of provider. So I feel like we’ve really projected ourselves around that EBITDA multiple range with the way we’ve structured the deal. Mike Gyure Great. And then maybe a quick follow-up. I guess when you look at the potential for $30 million of EBITDA, I guess what you’re thinking of using that EBITDA to do more acquisitions or what you’re thinking for? How you’re going to use that cash flow once these things close ultimately? Georganne Hodges So both transactions have earn-outs in final payments on them, indicates providers for a year in the case of major through three years. So we anticipate funding those additional payments out of the operating cash flows of those businesses. Any additional cash flow that is available will be used for either organic acquisitions or to fund future M&A transactions whether they would be direct purchases or dropdown transaction. Mike Gyure Great. Thanks very much. Georganne Hodges Thanks. Operator [Operator Instructions] We have a question from the line of Dan Fidell from U.S. Capital Advisors. Your line is open. Dan Fidell Good morning guys and congrats on couple of great acquisitions here it looks like and good prices paid certainly. Just one very quick question from me just on major energy, can you – I know they’re across eight states, can you give us some sense maybe not specifically but some sense on customer concentration across those eight states? Are they more lumpy in a few states rather than others? Nathan Kroeker They are all up in the northeast and their markets that we’re very familiar with all of their customers are in ISOs that we currently have operations in. So when we talk about adding 15 new markets, there are new utility service territories that directly overlap or are adjacent to utility and service territory that we already operate in. So we really look at it is being a great complement to our existing footprint. Dan Fidell Sure. Just wondering in terms of the eight states they are about evenly divided in terms of customers or – of all the states there are couple that are just in terms of concentration, are there a few that are lumpier than others just generally? Nathan Kroeker I would say there is not a big concentration in any one market. They are distributed across markets just like we are. Dan Fidell Very good. Okay. That’s all I have. Thanks very much and congrats again. Nathan Kroeker Thank you. Operator Thank you. [Operator Instructions] And it looks like no other questions that we have in the queue at this time. So I would like to turn the call back over to management for closing remarks. Nathan Kroeker Thanks again for participating in today’s call and we look forward to talking to many of you again soon. Operator Ladies and gentlemen, thank you again for your participation in today’s conference. This now concludes the program and you may all disconnect your telephone lines at this time. Everyone have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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