Find Top Stocks Fast with Predictive Metrics | Cheatsheet

ValueRay's Cheatsheet simplifies stock selection ✓ Quickly identify high-potential stocks using proven predictive metrics and make better investment decisions.

Top 15 Stocks - selected by GARP Metrics and Peer-Group Analyses
Symbol Market Cap Perf 3m Perf 12m Perf 5y P/E PEG RoE
COR NYSE
Cencora		 65.5B 14.6% 50.2% 277% 42.4 0.89 132%
CRS NYSE
Carpenter Technology		 15.4B 34.1% 82.2% 1,147% 37.7 1.59 22.7%
ESE NYSE
ESCO Technologies		 5.23B -1.94% 43.7% 102% 45.1 1.96 22.2%
ATI NYSE
Allegheny Technologies		 13.6B 43.1% 94.5% 568% 31.8 1.20 24.8%
EME NYSE
EMCOR		 27.2B -0.83% 30.1% 615% 24.5 1.32 36.8%
NVDA NASDAQ
NVIDIA		 4,465B -1.57% 27.5% 1,219% 45.4 0.69 104%
AM NYSE
Antero Midstream Partners		 8.94B -2.29% 25.9% 238% 19.1 1.17 22.6%
AXP NYSE
American Express		 258B 17.9% 28.8% 247% 25.0 1.78 33.4%
POWL NASDAQ
Powell Industries		 4.13B 17.3% 32.4% 1,175% 23.0 0.92 31.8%
TBBK NASDAQ
The Bancorp		 3.05B -9.44% 23.2% 409% 13.9 1.46 28.0%
AWI NYSE
Armstrong World Industries		 8.13B -5.03% 20.9% 152% 27.0 1.66 37.3%
BLBD NASDAQ
Blue Bird		 1.61B -13.1% 19.5% 216% 13.1 1.13 60.3%
RCL NYSE
Royal Caribbean Cruises		 70.3B -16.9% 15.6% 282% 17.3 0.83 46.8%
FBP NYSE
First Bancorp		 3.20B -1.78% 10.1% 183% 9.72 0.86 18.5%
ALLE NYSE
Allegion		 14.2B -7.84% 17.2% 57.4% 22.4 1.87 37.5%

The Four Principals of Profitable Investing

1. Find Economic Moat

  • High customer switching cost or effort
  • Unbeatable Prices
  • Intangible Assets (Patents, Trademarks, Copyrights, Approvals, Brand Names, Geographic Advantage)
  • Network Effect (Being the first mover -> Winner takes it all = legal Monopolists)

2. Buy at Fair Value or below

  • What is a low valuation for this company? (Historical P/E, P/B and P/S over the last 10 Years)
  • Discounted Cash-Flow Valuation (with a Margin of Safety)

3. Let it Compound

  • Avoid Trading (Commissions, Taxes, you will miss the best spots anyways by 10%)

4. Know when to sell

  • Realizing it was a mistake to buy it at the first place.
  • The stock became wildly overvalued (P/E Forward, PEG in the 90+ percentile of its peer group).
  • The company's moat has been destroyed or fundamentals are deteriorating.
  • You need the money to buy a house for your family (Do it, allways invest in inner peace and lifestyle).

Generic Screener Recommendations

  • Average Volume > 250,000 (> 1,000,000 for Options-Trading)
    When you're looking at stocks, it's a good idea to check if they have more than 250,000 shares traded on average each day. This usually means a smaller spread, making it quicker for you to buy or sell when you need to.
  • Market Cap > $500 Million (> $5,000 Million for Options-Trading)
    Avoid Nano Cap stocks, this helps to reduce the risk of share price manipulation.
  • Price > $7
    Avoid penny stocks, they often come with information problems and a high risk of being manipulated.
  • Age > 2 years
    For solid research, make sure you have access to at least two fiscal years or 8 quarters of key financial data: balance sheets, income statements and cash flow reports.

Recommended Fundamental Ratios

Sources: McKinsey 1, McKinsey 2

Profitability

  • ROIC > 15%
    Look for companies with an ROIC greater than 15% for a more profitable investment choice.
  • Net Profit Margin > 25%
    Net Profit Margin is a good indicator of how profitable a company is at the most fundamental level. Compare it to the industry average to see how well the company is doing.
  • FCF Margin > 7%
    Free cash flow is the amount of cash a company has left over after it pays for its operating expenses and capital expenditures. FCF margin is how much free cash a company generates relative to its revenue.

Growth

  • Revenue Growth > 10% YoY
    Key Driver of Long-Term Stock Performance.
  • EPS Growth > 10% YoY
    Leads to higher stock prices, hence most investors use Discounted Cash Flow (DCF) to value stocks.

Debt

  • Net Debt / EBITDA < 3
  • Net Debt / Free-Cash-Flow < 4
  • Debt / Equity < 80%
  • RoIC > WACC

How to identify the best stocks to buy by analyzing the earning sheets?

Business
  • Low volatility of margins
    Historically, gross margins should be stable and predictable
  • Pricing power
    High gross margins > 30%
  • Low Capital Intensity
    CAPEX/Sales < 5% and CAPEX/Operational Cash Flow < 15%
Ownership
  • Skin in the Game
    Owner & Family > 20% of shares (as example the Lundin Family owns a high amount of the shares and allways wins the vote)

How to identify Best Stocks to Buy by comparing financial ratios?

Business
  • Moat
    Sustainable, high Return on Invested Capital (ROIC > WACC) with recurring revenues, high gross margins and low capital intensity
  • Pricing Power
    Best CAPEX/Sales in Peer-Group
Capital Allocation (in order of importance)
  • Reinvest for organic growth (ROIC > 20%, historically stable)
  • Acquisitions (hard to predict which M&A creates value; 60%-90% don't)
  • Share buybacks (better than dividends)
  • Dividends 20% - 35% of EPS (only in absence of value creating alternatives)

How to Analyze a Stock

Understand the Product
  • Annual Reports
  • Investor Presentations, Shareholder Letters
Revenue Split
  • In which different segments does the company make money (Reliance on one product or group of customer?)
  • How does the geographical split look like (Geopolitical Risks?)
Skin in the Game
  • There are 1,000 resons to sell a stock, but only ONE to buy. So, which Insiders are buy/holding their stocks?
Moat
  • Check ROIC curve of the last 3-5 Years, the more stable the higher the Moat. No competition = legal monopoly.
Capital intensity
  • CAPEX/Sales < 5%
  • CAPEX/Operating Cash Flow < 15%
Financial health
  • Interest Coverage Ratio (EBIT/Interest payments) > 10
  • Net Debt / Free Cash Flow < 4
Profitability
  • Gross Margin > 30
  • FCF Margin > 20 (highly depends on the industry)
Historical Growth
  • Yearly Revenue Growth > 5%
  • Yearly Earnings Growth > 7%
Outlook
  • Secular trend (urbanization, aging, cybersecurity, obesity, digital payments, …)