ARGA’s investment approach, developed over decades of experience, translates our valuation-based philosophy into practical methodologies that create results.
From “Value” to “Valuation”
ARGA shifts the traditional “value” paradigm to a “valuation” paradigm. Our valuation approach is more complex than traditional value styles. While we use value metrics (e.g., price-to-earnings, price-to-book, dividend yield, etc.) as initial screens, most of our work is to evaluate companies’ intrinsic valuation through fundamental research and present value.
Present Value as Valuation
We use present value analysis as our primary valuation framework. We believe present value works best because it demands detailed company analyses. It also allows adjustments for company quality, risk and growth. As a result, it can identify companies with lower risks to long-term earnings power.
Dividend Discount Model (DDM) as Present Value
As our present value tool, DDM is critical because: 1) it allows us to rank stocks by return to DDM intrinsic value; 2) it enables valuation comparisons across companies, industries and geographies; and 3) it provides a common communications framework for our global business analysts.
Research as Valuation Inputs
DDM requires accurate inputs, which come from deep research. Our team of global business analysts follows an in-depth process of:
1) analyzing companies’ fundamental data
2) understanding the likelihood of recovery to normal earnings
3) building detailed models
4) estimating intrinsic valuation
Valuation as Stock Selection
Our approach culminates in the selection of stocks that trade at a discount to intrinsic valuation. In short, we buy stocks that have significant upside valuation potential relative to downside risk.