Finding Quality In A Volatile Market: Globe Life Inc. (GL)

Forbes

2 days ago

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The Magnificent Seven are often in the spotlight, but not because of any major shifts in their businesses. Some could call it a proverbial flip of the narrative switch to shine the lights on the usual suspects to stir up some fresh buying activity. It's a classic case of attention reallocation rather than fundamental change.
Investors beware – just because the hype machine is revving doesn't mean there's substance behind the noise.
In a market driven by headlines, hype, and momentum, identifying truly high-quality investment opportunities requires more than surface-level analysis. Research grounded in deep diligence, which considers financial statements, footnotes, and management commentary unveils the kinds of businesses worth owning, not just trading.
My Most Attractive Stocks Model Portfolio identifies the best stocks in the market, i.e. the stocks that are not only undervalued but also possess strong fundamentals. To demonstrate how my company's superior research creates alpha, I'm are sharing a stock pick from this Model Portfolio.
This pick comes with a concise summary, not a full Long Idea report. The summary gives you insight into the rigor of my firm's research and approach to picking stocks. Whether you're a subscriber or not, I think it is important, especially in today's volatile market environment, that you're able to see quality research on stocks. I'm proud to share my work, and I want to help investors when they need it most.
Stock picking success, like golf, is as much about how well you hit your bad shots as how well you hit your good shots!
Most Attractive Stocks Pick: Globe Life Inc. (GL)
Globe Life (GL: $120/share) has grown revenue and net operating profit after tax (NOPAT) by 4% and 7% compounded annually since 2014, respectively. Globe Life's NOPAT margin increased from 14% in 2014 to 19% in the TTM, while its invested capital turns fell from 1.0 to 0.9 over the same time. Rising NOPAT margins are enough to offset falling invested capital turns and drive Globe Life's return on invested capital (ROIC) from 13% in 2014 to 16% in the TTM.
Figure 1: Globe Life's Revenue and NOPAT Since 2014
GL Revenue And NOPAT: 2014-TTM
GL Is Undervalued
At its current price of $120/share, GL has a price-to-economic book value (PEBV) ratio of 0.6. This ratio means the market expects Globe Life's NOPAT to permanently decline by 40% from TTM levels. This expectation seems overly pessimistic for a company that has grown NOPAT by 7% compounded annually over both the last ten and five years.
Even if Globe Life's NOPAT margin falls to 12% (which would be the lowest NOPAT margin since 1999) and the company grows revenue by just 3% (below ten-year CAGR of 4% and five-year CAGR of 5%) compounded annually through 2034, the stock would be worth $156/share today – a 30% upside. In this scenario, Globe Life' NOPAT would fall 2% compounded annually through 2034.
Should Globe Life grow profits more in line with historical levels, the stock has even more upside.
Critical Details Found in Financial Filings by My Firm's Robo-Analyst Technology
Below are specifics on the adjustments I made based on Robo-Analyst findings in Globe Life's 10-K and 10-Q:
Income Statement: I made over $100 million in adjustments, with a net effect of removing over $15 million in non-operating expense.
Balance Sheet: I made nearly $4 billion in adjustments to calculate invested capital with a net increase of under $1 billion. One of the most notable adjustments was for other comprehensive income.
Valuation: I made just under $200 million in adjustments, all of which decreased shareholder value. The most notable adjustment was for outstanding employee stock options.