Is
This a Quality Company?
From Lynn Ostrem, Crow River Investment Club
www.bivio.com/crowriver
1st
Does this company meet our basic criteria?
There's
no sense in spending a lot of time on a company that does not meet our most
basic BI criteria. Complete a Stock Selection Guide (SSG). We are
looking for the following:
§
Straight,
upward graph lines;
§
Double-digit
historical sales & earnings;
§
Most
recent 4 quarters growing at or better than the 10-year average;
§
Reasonable
debt (BI says < 33% of total capital);
§
Reasonable
insider ownership; and
§
Steady
or climbing Pre-Tax Profit as a % of Sales (2A).
2nd
Is this a Quality Company?
See
if you can answer the following questions—not each one specifically, but as a
whole. Try to get a “feel” for the company’s character and future
prospects.
Excellent
Business Model:
§
Does
the company have a monopoly-type business that makes it difficult for
competitors to enter?
§
Does
it have an instantly recognizable product or service?
§
Is
the product or service so superior over its competitors that it commands buyer
loyalty?
§
Does
the company make products that wear out fast or are used up quickly?
§
If
the products are not purchased frequently does the public use them on a daily
basis?
§
Can
the company raise its prices to stay ahead of inflation without incurring a
decline in demand?
§
Does
the business have a repetitive consumer service that people are constantly in
need of, where non-union workers with little or no skills can perform the
services?
§
Do
I understand how the company makes its money?
§
Is
it in the business of making products that do not require that it spend heavily
on sophisticated plants and on-going capital improvements?
Expanding
Possibilities:
§
Where
does this company rank among its competitors?
§
Is
it in the top 1st or 2nd position in its industry, by sales?
§
What
is the outlook for its industry?
§
Does
the company have products or services with sufficient market potential to make
possible a sizable increase in sales for at least several years?
§
Is
worldwide expansion believable for their products?
3rd Finding Good Companies
Look around your house. Buy what you know!
This is easy! Look on the cans and boxes in your pantry, under your
kitchen and bathroom sink and in the laundry room. Look on the labels of
your linens, clothes and furniture. What kind of computer do you
own? Printer? Where do you buy your paper and toner
cartridges? What kind of car do you drive? Who’s your insurance
carrier? Which are your favorite restaurants, discount or drug
stores? Clothing stores? Where do you or your neighbors buy their children’s
clothes and toys? Start becoming aware of these things.
Read
local or national newspapers.
The local newspapers have business sections. If you get the paper, start
perusing this section for interesting stories. Barnes & Noble,
Borders Books and other book stores also carry local business
publications. The good national papers are Business Investors’ Daily, USA
Today, and the Wall Street Journal. If you plan to take a trip, stop in
at a local book store and pick up a couple of these publications. Or read
them at your library.
Read
financial magazines.
They come in every conceivable flavor! You can find them at any magazine
stand (including the grocery store line) and many of them also reside
online. It’s recommended that you choose one or two and subscribe.
Just be aware that each stock has a story…a good one!…or it typically isn’t
highlighted in a magazine. Any good story is only a “hot tip” until
you’ve done your research!
§
Money
Magazine www.money.com
§
Smart
Money Magazine www.smartmoney.com
§
Fortune
Magazine www.fortune.com
§
Forbes
Magazine www.forbes.com
§
Worth
Magazine www.worth.com
§
Kiplinger’s
Personal Finance Magazine, also at www.kiplinger.com/magazine
Also,
you can go to www.yahoo.com, click on News,
then search for your company's hometown paper. Or, you can go to www.executivelibrary.com to find
company and industry research publications!
Read
daily news on the internet.
This is an enjoyable process! There are many daily news
sources—obviously, many cover the same information. But it’s worth taking
a little time each day to learn something new.
§
The
Motley Fool at www.fool.com
Click on Today’s Headlines.
§
Morningstar,
Inc. at www.morningstar.com
§
MSN
at www.moneycentral.msn.com/investor
§
Investor
Place at www.investorplace.com
Check out Today's Features
§
CBS
MarketWatch at www.cbs.marketwatch.com
§
Net
Stock Direct at www.moneypaper.com
Covers DRIPS and Direct stocks
Peruse
the Value Line Investment Survey at the library...
Value
Line is the granddaddy of investment analysis. The standard edition
contains 1,700 stocks. The expanded edition has another 1,800
stocks. Each Friday, a new section is released, covering several
industries. There are 13 in all. Then they start all over
again. Each section comes out 4 times per year.
…and
the S&P Reports and the Outlook.
S&P
reports are similar to the Value Line report. Most online brokers provide
access for free. If not, you can get them at the library.
The
Outlook is a wonderful source of stock ideas. Each week, a report comes
out, loaded with ideas. This book is typically available in the larger
libraries.
Use
BI, Bivio, Manifest Investing, IClub and other related websites; check what
other clubs are buying.
BI has a constant flow of good stock ideas! Their website is at
www.betterinvesting.org
There you will find the following:
Monthly
Featured Stocks – Stock to study, Undervalued, etc.
Investor’s School – These are the transcripts of recent stock study classes.
BI Top 100 Stocks – A list of the most popular investment club stocks.
I-Club-List – A message board where BI club members discuss their stocks.
BI Forum – Another BI website that houses stock studies and message boards.
Bivio is located at www.bivio.com
Manifest Investing has a free trial and plenty of education www.manifestinvesting.com
IClub has the software to help you select good stocks www.iclub.com
4th Where to do your Research?
Company’s
Website:
The
company website address can be found in the Business Section of Value Line. You
can also find the company website online by entering the ticker symbol at most
financial websites and finding the Company Snapshot or Profile. Oftentimes, you
can “guess” the website address, i.e. Pfizer is www.pfzer.com
and Home Depot is www.homedepot.com
The
company website has a wealth of information on the company’s history, its
employees, products, locations and financial statements. You can also
find recent press releases and other interesting information.
Annual
Reports
The SEC requires all public companies to produce an annual report. These
booklets will explain the company’s products, services, market share, and
financial statements. Management will explain what happened during the
year, and what they expect for the year to come. You will gain a lot of
knowledge about a company reading its annual report. You can access most
annual reports through a company’s website. Don’t print the annual report from
the website. It’s too long. If you want a copy, the company will
send you one at no charge. Send them an email directly from their
website. Or, download them onto your computer from the company's website.
SEC
Reports – www.edgarscan.pwcglobal.com
You can access the SEC through Edgarscan. It will take you to the 10K
(annual) reports and the 10Q (quarterly) reports, as well as any other filings
the company might make. These reports are similar to the annual report,
but companies are not allowed to provide flowery presentations. These
reports are actually much more direct. The Business Section covers the
company’s activities, risks and competitors, as well as managements assessment
of it’s future. This is the real meat—a must read when doing research.
Free
Online Research Websites
Let’s look at competitors: First read the companies 10K Business Section.
After that:
§
§
Reuters
at www.reuters.com
§
Yahoo
at www.finance.yahoo.com
For ratios, current
prices, and other numbers:
§
#1
site is Reuters at www.reuters.com
§
Yahoo
at www.finance.yahoo.com page.
§
MSN
at www.moneycentral.msn.com
§
411
Stocks at www.411stocks.com, click on
Stocks, enter ticker.
For Earnings estimates
3-5 years away:
The
Value Line report will be the best source, but it’s only one analyst’s opinion.
After that:
§
Reuters
at www.reuters.com
§
Manifest
Investing at www.manifestinvesting.com
if you are a subscriber. They also have the industry's estimated growth
rates.
Free
Online Magazines:
Enter your ticker symbol into the website’s Search Box, and see if there are
any recent articles on the company. Do the same with the name of the
company’s president.
§
Money
Magazine, also at www.money.com
§
Smart
Money Magazine, also at www.smartmoney.com
§
Fortune
Magazine, also at www.fortune.com
§
Forbes
Magazine, also at www.forbes.com
§
Worth
Magazine, also at www.worth.com
§
Kiplinger’s
Personal Finance Magazine, also at www.kiplinger.com/magazine
Free
Online Conference Call with the Company:
At the end of every quarter, the company must make a progress report to the
SEC, its shareholders, the media and Wall Street. Many of these
conference calls (20-45 minutes) are now online. You can check the
company’s website for a link in their Investor Relations section, or go to
Earnings.com at www.earnings.com to
listen to a replay. You can also find most company transcripts at Seeking Alpha
www.seekingalpha.com.
Using
the company’s products…or visiting the company’s stores:
I
think this one is a gimme!
More investment ideas are available at the Crow River
Investment Club Website
www.bivio.com/crowriver