Saturday, May 16, 2009

Phoenix stocks - identifying stocks to buy

Looking for candidates to buy, how about these criteria?

1) A growing business - business with wide and growing opportunities
2) Earnings certainty - a sustainable competitive advantage - strong pricing power
3) Mispriced opportunity - misunderstood business situation
4) Quality management/board - with a track record and significant insider or founder ownership and buying
5) Strong returns on invested capital and ROE
6) Solid balance sheet - low debt and ideally not a capital intensive business
7) Strong, stable cashflows - cashflows as good or better than net income
8) Buying back shares - EPS accretive
9) Small market capitalisation - brokers only like companies that need to pay them fees, small is beautiful but unloved
10) Attractive valuation - sustainable P/E below 10x and preferably trading below NTA

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