​Walker & Dunlop: A Dremen-Style Contrarian Buy

MoneyShow  |

John Reese, editor of Validea, maintains a “Hot List” portfolio that includes stocks that meet the investing criteria of some of the market's most legendary investors.

Walker & Dunlop (WD) provides commercial real estate financial products and services primarily to developers and owners of multifamily properties. The company earns a 100% ranking based on the contrarian investor strategy of David Dreman.

A company should show a rising trend in the reported earnings for the most recent quarters. WD’s EPS for the past 2 quarters, (from earliest to most recent quarter) 1.13, 1.35 have been increasing, and therefore the company passes this test.

This methodology likes to see companies with an EPS growth rate higher than the S&P in the immediate past and a likelihood that this trend will continue in the near future. WD passes this test as its EPS growth rate over the past 6 months (40.62%) has beaten that of the S&P (1.61%).

WD’s estimated EPS growth for the current year is (22.47%), which indicates the company is expected to experience positive earnings growth. As a result, WD passes this test.

Trade Commission-FREE with Tradier Brokerage

This methodology would utilize four separate criteria to determine if WD is a contrarian stock. In order to eliminate weak companies, we have stipulated that the stock should pass at least two of the following four major criteria in order to receive “Some Interest.”

The P/E of a company should be in the bottom 20% of the overall market.

WD’s P/E of 11.58, based on trailing 12-month earnings, meets the bottom 20% criterion (below 13.36) and therefore passes this test.

The company should have a high ROE, as this helps to ensure that there are no structural flaws in the company. This methodology feels that the ROE should be greater than the top one-third of ROE from among the top 1500 large cap stocks, which is 17.03%. The ROE for WD of 24.74% is high enough to pass this criterion.

This methodology looks for pre-tax profit margins of at least 8% and considers anything over 22% to be phenomenal. WD’s pre-tax profit margin is 34.04%, thus passing this criterion.

John Reese is the founder and CEO of Validea.com, an independent stock research firm, and Validea Capital Management, an asset management company.

Subscribe to John Reese’s Validea here…

About MoneyShow.com: Founded in 1981, MoneyShow is a privately held financial media company headquartered in Sarasota, Florida. As a global network of investing and trading education, MoneyShow presents an extensive agenda of live and online events that attract over 75,000 investors, traders and financial advisors around the world.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

Market Movers