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Value Series II: L3Harris Employees Can Use the P/CF Ratio to Find Value

For L3Harris employees building a Retirement strategy, focusing on undervalued stocks with a high Price-to-Cash Flow ratio can be a useful tool to improve portfolio performance and plan for the future, 'says [Advisor Name], a representative of The Retirement Group, a division of Wealth Enhancement Group.

'As market volatility continues to mount, L3Harris employees should look for investment strategies that reward cash flow more than traditional earnings to help them achieve their long-term Retirement goals,' says [Advisor Name], a representative of The Retirement Group, a division of Wealth Enhancement Group.

In this article we will discuss:

1. Importance of Price-to-Cash Flow ratio in the evaluation of investment opportunities.

2. Long-term returns how value investing outperformed glamour investing.

3. Role of Price to Cash Flow ratio in retirement planning for L3Harris employees & retirees.

Given current market volatility, we think now is a good time to revisit important value metrics with L3Harris employees and retirees in our four-part series. Part two of this four part value series will examine the Price-to-Cash Flow ratio. But sometimes investors want to beat the market. Those investors should consider the following proven strategy that some great investors have used.

Value investors learned how to beat the average annualized returns of the S&P 500 decades ago - and many have decades of track record to prove it. The most famous value investor is obviously Warren Buffett, but so are Benjamin Graham, David Dodd, Charlie Munger, Christopher Browne and Seth Klarman. This style invests in four metrics that define a value investment. These are the Price-to-Earnings Ratio, Price-to-Cash Flow Ratio, High Dividend Yield and Price-to-Book Ratio. These metrics are strong indicators of undervalued security, as you will see. These cheap L3Harris securities regularly beat the market. How they affect investing depends on some characteristics and how their investment returns are correlated.

Today we examine the Price-to-Cash Flow ratio (P/CF) as a tool for planning for the retirements of L3Harris employees. Many feel that using cash flow rather than accounting earnings paints a more complete picture of a company's business performance that may help with investment decisions and investment performance. We understand researched solutions are important to L3Harris employees. Below are the results of two Fama and French [1] backtests of cash flow yield (the inverse of P/CF ratio) data from 1951 to 2013. As of December 2013, the sample had 2,526 firms (Carlisle-PCF, P2). The value decile had the 269 stocks with the highest cash flow yield and the glamour decile had the 311 with the lowest cash flow yield. The glamour stocks average USD 4.74 billion in size and stocks are worth USD 4.80 billion. (The average is skewed by the largest companies. In context, the smallest company is worth USD 272 million today (much smaller than average but still investable for most investors).

Stocks having negative cash flow were excluded. Portfolios are formed June 30 and rebalanced annually. In this backtest, the two portfolios are weighted by market capitalization, so bigger firms drive the portfolio performance more and smaller firms less. Here the value decile has returned 16.7 percent compound (18.6 percent in the average year) versus 9.3 percent for the glamour decile (11.5 percent in the average year) (Carlisle-PCF, P3) This is because the value portfolios generated more cash flow per dollar invested compared to the glamour decile. 27.2 percent versus 4.3 percent for the glamour portfolio (Carlisle-PCF, P5). I used a rolling average. The 'average' I've quoted is for the full period. The rolling average is higher but never lower. The rolling average is the annualized mean return for each year-long period (sometimes called a 5-year rolling return) As we noted above, value's outperformance over glamour is not a historical anomaly.

Taking just the period from 1999 we see that even though the return is lower than the long-term average, value has remained the better bet. Since 1999, value outperformed glamour 8.7 percent compounded and 6.2 percent in the average year (Carlisle-PCF, P7) Possibly the popularity of simple value strategies has contributed to lower returns recently. I think it's because the market is still working off the massive overvaluation of the late 1990s Dot Com boom. We think a value-based strategy is best for L3Harris employees and retirees Market capitalization-weighted returns can be used to show that the outperformance of value over glamour is not due to value portfolios with smaller stocks. They mean absolutely nothing unless you're running an index or hugging an index. It is easiest to just weight all positions equally in a portfolio. (If we are prepared to take a little more volatility in exchange for a little extra return, we can also Kelly weight [2] our best ideas). Kelly Weighting is based on the Kelly Criterion - a formula for determining what percentage of capital should be invested in each trade to achieve maximum long-term growth.

There are two parts to the formula (Kelly% = W-[(1 - W)/R]: the winning probability factor W and the win/loss ratio R. It is a winning probability that the probability trade will result in a positive return. The win/loss ratio is the sum of the positive trade amounts minus the negative trading amounts. Its result will tell investors what percentage of their total capital they should invest in each investment. Equal weight return statistics for cash flow yield are given below. The value returned 20.7 percent compounded (23.8 percent on average) against glamour's 9.3 percent compounded return (12.5% on average) in the equal weight backtests (Carlisle-PCF, P9).

And you might notice that there is a tiny advantage for the cash flow yield's value decile over the earnings yield's value decile: 20.7 percent to 20.1 percent. We'll examine the impact of that small cash flow win in coming weeks. Again the value portfolios generate more cash flow than the glamour portfolios - 24.6 percent versus 4.1 percent in the glamour portfolios. We saw last week that the average cash flow yield of the equally weighted value portfolio is a bit lower than that of the market capitalization-weighted portfolios.

This means that over the whole period, bigger stocks were generally cheaper than smaller stocks to buy cash flow. Not always, of course, but it is interesting nonetheless. In equal-weight portfolios, value has beaten glamour since 1999 by 11.1 percent compounded and 10.0 percent in the average year. Since the value portfolios generate more cash flow than the glamour portfolios (on average 24.6 percent versus 4.1 percent in the glamour portfolios) we value research just as much as L3Harris employees and retirees do (Carlisle-PCF, P10). We saw last week that the average cash flow yield of the equally weighted value portfolio is a bit lower than that of the market capitalization-weighted portfolios.

This means that over the whole period, bigger stocks were generally cheaper than smaller stocks to buy cash flow. Not always, of course, but it is interesting nonetheless. In the equal-weight portfolios, value has outperformed glamour Since 1999 by 11.1 percent compounded and 10.0 percent in the average year (Another study analyzing the P/CF metric is listed below. Brandes study In a Brandes Research Institute Study, exhibit 6 shows global all-cap results across three price metrics. They confirmed a consistent premium across all metrics. Focus is on P/CF ratio and outperformance in decile 10 value stocks. The smallest outperformance between decile 1 glamour stocks and decile 10 value stocks is seen in P/B measurement, where the average outperformance was 7.1% (Brandes, p. 8) In the same Brandes study they tracked Price-to-Cash Flow in the U.S., Non-U.S. and Emerging Markets. In rolling 5 year annualized returns of price-to-cash flow deciles for 1980-2014, the lower price-to-cash flow deciles outperform the higher Price - to-Cash flow deciles.

Results are shown on the graph 'Appendix C: Figure 4' Using P/CF Deciles Findings by Regions. ' Even though all of the lowest Price-to-Cash Flow deciles outperform the high Price-to-Cash Flow deciles, the biggest premiums occur outside of the United States. Actually, the biggest premium is found in emerging markets where companies that generate more cash are better positioned to weather market downturns. This highlights how useful P / CF ratio analysis can be in planning for L3Harris employees' and retirees' retirements Currently the average Price-to-Cash Flow (P / CF) for the stocks in the S&P 500 is 13.9.

But like the P/E ratio, any value below 15 to 20 is generally good. A study from Zach's confirms this. According to their testing, a P/CF of 0-10 delivered the best result (17.1% in 10 years). The second best was 10-20, up 10.2%. But at + 30, the odds are stacked against a loss (-2.8%). And over 40, the odds are even greater - -6.9%. You can see that low-price-to-cash-flow stocks outperform high-price-to-cash-flow stocks The Retirement group is a national group of financial advisors. We only plan for and design retirement portfolios for transitioning corporate employees.

And each representative of The Group has been hand picked by the Retirement Group in select cities throughout The United States. Each advisor was screened for pension expertise, financial planning experience and portfolio construction knowledge. TRG believes in teamwork to find solutions to our clients' problems. A conservative investment philosophy guides the team in constructing client portfolios with laddered bonds / CDs / mutual funds / ETFs / Annuities / Stocks and other investments. They handle Retirement / Pensions / Tax / Asset Allocation / Estate / Elder Care issues. This document uses different research tools and techniques. All attempts to estimate future results involve assumptions and judgments and are therefore only tentative estimates.

The law, investment climate, interest rates and personal circumstances will all change and will affect how accurate our estimations are and how appropriate our recommendations are. Such a plan requires ongoing change sensitivities as well as constant re-examination and alteration of the plan. So update your plan a few months before your expected retirement date and do an annual review. Nothing contained herein shall be construed as an attempt by the Retirement Group, LLC or any of its employees to practice law or accounting. We look forward to speaking with any tax and/or legal professionals you may select regarding the implications of our recommendations. Through your retirement years we will continue to update you on issues affecting your retirement via our complimentary and proprietary newsletters, workshops and periodic updates. Or call us at (800) 900-5867.

Articles you may find interesting:

Sources:

1. 'Layoffs and Job Cuts News - 2024.' The Layoff , 2024, www.thelayoff.com

2. .'Cognizant Technology Solutions Restructuring and Layoff Updates. ' The Layoff , 2024, www.thelayoff.com .

3. 'Cognizant Technology Solutions Pension Plan and 401(k) Details. ' Investopedia , 2024, www.investopedia.com .

4. 'Stock Options and RSU Details for Cognizant Technology Solutions. 5. ' Forbes , 2024, www.forbes.com .

5. 'Cognizant Technology Solutions Employee Stock Options and RSU Guide.' Business Insider , 2024, www.businessinsider.com .

What specific factors should L3Harris Technologies employees consider when determining the most suitable form of pension benefit at retirement? Employees of L3Harris Technologies may have various options, such as life annuities, contingent annuities, and lump-sum payouts. Understanding the implications of each option, including tax treatments and benefit guarantees, can be crucial in making a decision that aligns with long-term financial goals. It is also important to consider how the selected form may affect survivor benefits and overall retirement income planning.

Pension Options at Retirement: L3Harris Technologies employees have various pension benefit options to consider at retirement, such as life annuities, contingent annuities, and lump-sum payouts(L3Harris Technologies I…). Each option has different tax treatments, survivor benefits, and guarantees. For example, selecting a life annuity ensures a fixed monthly payment for life, while a lump-sum payout might offer more flexibility but comes with immediate tax implications. Employees should evaluate how each option aligns with their long-term financial goals and whether it provides adequate survivor protection for dependents(L3Harris Technologies I…).

How does L3Harris Technologies determine eligibility for early retirement, and what implications does this have for pension benefits? Employees should familiarize themselves with the criteria for qualifying for early retirement, including age and service requirements. Additionally, understanding the benefits that are available should retirement occur before the standard retirement age can affect financial planning, as these benefits can differ significantly from those available at normal retirement age due to reduction factors or penalties.

Early Retirement Eligibility: L3Harris Technologies determines eligibility for early retirement based on age and years of service. Employees may qualify for early retirement if they are at least 55 years old and have completed 10 years of service(L3Harris Technologies I…). Opting for early retirement can result in a reduced pension benefit due to the longer payment period. These reductions, known as early retirement penalties, affect financial planning since the payout is lower compared to waiting until the normal retirement age(L3Harris Technologies I…).

In what ways do the pension formulas at L3Harris Technologies differ, and how can employees assess which plan is most advantageous for their retirement? Employees participating in the L3Harris pension plan can choose between different formulas, such as the Traditional Pension Plan and the Pension Equity Plan. Assessing which formula may yield higher benefits involves understanding the benefits calculation processes, including how each formula accounts for years of service, salary history, and participation criteria, which can significantly impact total retirement income.

Pension Formulas: L3Harris employees can choose between different pension formulas, such as the Traditional Pension Plan and Pension Equity Plan(L3Harris Technologies I…). The Traditional Plan is based on years of service and final average pay, while the Pension Equity Plan uses a lump-sum formula that accrues value over time. Understanding how each formula calculates benefits is essential for employees to determine which plan will provide higher retirement income, depending on their service years and salary history(L3Harris Technologies I…).

How should L3Harris Technologies employees prepare for the selection of a beneficiary, and what are the potential impacts on their pension benefits? Selecting a beneficiary is an important component of retirement planning. Employees at L3Harris Technologies must understand the implications that come with adding a spouse or other individuals as beneficiaries, including the effect on benefit amounts and how beneficiary selection can influence survivor payouts. Moreover, they should familiarize themselves with the requirements for updating beneficiary information and the legal implications of such designations.

Beneficiary Selection: Choosing a beneficiary is a crucial step for L3Harris employees. Adding a spouse or another individual as a beneficiary may reduce the employee's pension benefit but ensures that a portion of the pension continues after the employee's death(L3Harris Technologies I…). Employees should be aware of the survivor benefit provisions, spousal consent requirements, and the need to regularly update their beneficiary information(L3Harris Technologies I…).

What procedures must L3Harris Technologies employees follow to appeal a denied pension benefit claim, and what timelines should they be aware of? Employees should be well-informed about the steps involved in the appeals process for denied claims, including how and when to file an appeal and the importance of providing adequate documentation. Understanding the statutes of limitations related to claims and appeals can significantly influence the outcomes for employees seeking to reinstate or secure their benefits.

Appealing Denied Claims: L3Harris Technologies employees must follow a formal process to appeal denied pension benefit claims(L3Harris Technologies I…). The process includes submitting an appeal within a specific timeframe and providing supporting documentation. It is important to be familiar with the statute of limitations and administrative remedies to ensure the best chance of success when appealing a decision(L3Harris Technologies I…).

How does L3Harris Technologies handle survivor benefits, and what actions should employees take to ensure that their surviving spouses or partners have access to these benefits? Understanding the components of survivor benefits at L3Harris Technologies is crucial. Employees should learn about the eligibility of their spouses or partners following their death, the type of benefits due, and any actions required to secure these benefits. Familiarity with the planâ€™s rules surrounding survivor benefits and timelines for elections can also affect the financial security of beneficiaries.

Survivor Benefits: L3Harris offers survivor benefits to spouses or designated beneficiaries(L3Harris Technologies I…). Employees must ensure that their spouse or partner is properly designated to receive these benefits, which may involve selecting an annuity option that provides continued payments to the survivor. Understanding the timelines for making these elections and the rules governing survivor benefits is crucial for securing financial support for loved ones(L3Harris Technologies I…).

What resources are available for L3Harris Technologies employees for receiving personalized retirement counseling, and how can these resources aid in making informed financial decisions? Employees may benefit from accessing professional counseling services or informational resources provided by L3Harris Technologies. These resources can include individual retirement planning sessions that help employees align their pension benefits with their overall retirement strategy, ensuring that they utilize their benefits effectively and are informed about their options.

Retirement Counseling Resources: L3Harris provides personalized retirement counseling services to assist employees with their pension and retirement planning(L3Harris Technologies I…). These resources include individual sessions to discuss how pension benefits fit into overall retirement strategies. By leveraging these services, employees can make well-informed decisions about their financial future(L3Harris Technologies I…).

How can employees of L3Harris Technologies find out more about their eligibility for the Cash Balance Plan and the advantages of this plan over traditional pension formulas? Employees should research what defines an "active Cash Balance Plan Participant" as well as the benefit calculations associated with it. Investigating the elements that set this type of plan apartâ€”specifically regarding lump-sum distributions and the ability to track benefitsâ€”can better inform employees about the potential advantages for their future retirement income.

Cash Balance Plan: Employees interested in the Cash Balance Plan can research its advantages over traditional pension formulas. The Cash Balance Plan allows for lump-sum distributions and provides clear benefit tracking, which can be more appealing to employees looking for flexibility and control over their retirement funds(L3Harris Technologies I…).

What impact do potential changes to the L3Harris Technologies pension plan have on current employees, and what steps should they take to stay informed about such changes? Employees should remain vigilant regarding any amendments to the pension plan that could influence their retirement benefits. This includes understanding their rights under ERISA and staying engaged with communication from L3Harris regarding plan updates, ensuring that they are equipped to make timely decisions based on the latest information.

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How can employees of L3Harris Technologies contact the Benefits Service Center to address specific questions regarding their pension plan or retirement strategy? It is essential for employees seeking clarity on their pension benefits or retirement planning to know how to reach out to the L3Harris Benefits Service Center. This center acts as a vital resource, and understanding its operationsâ€”including contact times, methods of contact, and the types of inquiries that can be addressedâ€”will enable employees to receive the guidance they need regarding their benefits.

Benefits Service Center: L3Harris employees can contact the Benefits Service Center for any questions regarding their pension or retirement strategy. The center provides assistance with understanding pension benefits, resolving issues, and addressing specific inquiries related to retirement planning(L3Harris Technologies I…)(L3Harris Technologies I…).