Help needed from value investors

After reading Intelligent Investor by Graham, I realized that this is a kind of strategy I would adopt to invest. I surely understand the general principals about business, debt, leverage, interest coverage and margin of safety.
My only issue is about numbers.
I try to invest in stocks that payout dividends, thus I mostly use DDM. I found one great chemical company from Germany. The business is awesome, it has a very diversified portfolio of products for industries starting from construction ending with aviation.
On the valuation side is not cheap, but not expensive either P/E is about 16.5 (and it's pretty representative). P/BV is a bit high, but it's due the number of patents the company has. DVY about 3.8% Average ROE is about 17.5% average for the last 10 years.
Now, when i do DDM i get a return on equity about 10%. Using the Gordon growth model I get a value of 25% greater than the price, which is pretty good, but that means a growth of about 7% (which is not sustainable at all).
When I try to punch in more realistic data like short term growth of say 10% and long term of about 3% i get about the same value as the actual price.
And it happens a lot of times. I find great businesses, potential for growth, but when I punch in the numbers and try to be conservative none of them is good.
What would would suggest to do with my calculations? I am really interested in finding what other value investors do. Thanks

 

If the company is diversified, try using a SOTP. Compare their various BUs with industry averages and see if they are trading at a discount and try to understand why. Also see if you try to value the patents, which may add few dollars to the share price.

 

A model should give you a range.

In today's world, hence before Graham, it's rare to find great opportunities using a stock screen. Anyone can enter the same inputs, p/e range of x, roe greater than etc. and get a list of companies and purchase a portfolio of them thus wiping out most of your upside.

You are not doing anything wrong, someone, many someones, just did it before you.

Good approach though and good that you are putting some thought into growth numbers

 

Thanks for your thoughts. I found god opportunities before (2011-2012), but because i was to irrational and not sure of my own analysis i either sold to early, or sold after a nasty quarter. I lost very good opportunities, and probably I cannot find others like those because market is a bit high. I am still trying to find a better valuation approach then those generally used, but it's pretty hard to find any alternatives.

 

Actually, I wouldn't say it's rare at all - J. Greenblatt's book 'The Little Book That (Still) Beats the Market' could give you some insight as to why.

Simply put. Can anyone enter the same inputs? Yes. Will everyone follow the approach? Of course not. This is especially true due to the need to perform in the short-run by institutional investors, hence you cannot always wait for the situations to play out (esp. if you're one of those 'no catalyst' type investors).

If you want even greater price 'irrationality' - move away from the mega-cap companies with high institutional investor base and excessive stock coverage by the SS.

 

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