Stock portfolio analysis based on margin of safety and competitive edge evaluation in the American wine and liquor industry

In the procedure of value investing, cheap stocks should achieve an adequate margin of safety, ensuring the principal's safety by leaving enough space for corporations' future development and stock market's uncertainty; high quality stocks require that the invested companies should have a long-time competitive edge to avoid the “value trap” and assure the profit maximum. Therefore, this paper constitutes a stock portfolio strategy based on the combination of margin of safety and competitive edge evaluation. The first step of the strategy is to calculate the intrinsic value per share, then to compare this value with the current price in the stock market. The stocks with prices lower than intrinsic values would be selected as the potential investment targets. The next step is to set up a competitive edge model using factor analysis method to evaluate the degree of competitive ability of different companies. Finally, investors can create a stock portfolio with both the margin of safety and the competitive edge. This paper researched the stock strategy by real-world investment in the American wine and liquor industry, offering a decision reference for the domestic investors who are interested in the wine and liquor corporations in the United States.