I have reviewed issue 5 of Value Line and added companies that have exceptional returns on equity or growth in book value. The list is not perfect and some judgment is required in deciding whether to include a particular stock. As always, I welcome your feedback and comments.
The idea here is to have a dashboard of substantially all the high quality businesses in the U.S. in one place that you can review at least weekly to see what Mr. Market is making available to you.
Here is the updated watchlist.
Stocks Added This Week.
Cisco Systems, Inc. (CSCO)
Nokia Corporation (ADR) (NOK)
Express Scripts, Inc. (ESRX)
Avon Products, Inc. (AVP)
The Estee Lauder Companies Inc. (EL)
Nu Skin Enterprises, Inc. (NUS)
Stocks Moving Within 10% of Their 52 Week Low:
Techne Corporation (TECH)
Paychex, Inc. (PAYX)
If you see a stock that looks interesting, here are some questions that may be useful in determining if it is worth pursuing further:
1. Is it within my circle of competence, i.e. do I understand how the business works and where it will be in five to ten years? Be mindful of overconfidence bias.
2. If yes, spend an hour reading the annual report and recent filings. Read these with a purpose. Try to develop a preliminary investment thesis that you are trying to substantiate or disprove.
3. Calculate EBIT (EBITDA – maintenance capex)/Enterprise Value to see how cheap it is.
4. Calculate return on tangible capital employed to see how good a business it is.
5. Ask yourself if it is as good or better than your best holding(s). See Opportunity Cost: Buffett & Munger’s Powerful Investing Filter
6. Ask yourself if it meets your hurdle rate, i.e. 15%, 20%, etc. If you don’t know where you’re going, any road will take you there.
7. Ask yourself if it is better than the other stocks available on the list or that you have found elsewhere. All things considered, buy the cheapest asset available.
8. If it passes all these relatively quick tests, it may warrant your research time.
The author of this blog is NOT an investment, trading, legal, or tax advisor, and none of the information available through this blog is intended to provide tax, legal, investment or trading advice. Nothing provided through these posts constitutes a solicitation of the purchase or sale of securities/futures. The data and information presented in this blog entry is believed to be accurate but should not be relied upon by the user for any purpose. Any and all liability for the content or any omissions, including any inaccuracies, errors or misstatements in such data is expressly disclaimed.