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.
ValueRay Top 9 Stocks Selected by proven GARP Predictive Metrics
| Symbol | Market Cap | 12m | 5y | P/E | PEG | RoE |
|---|---|---|---|---|---|---|
| AM NYSE Antero Midstream Partners |
8.60B | 32.1% | 599% | 21.65 | 1.17 | 18.95 |
| CRS NYSE Carpenter Technology |
8.54B | 116% | 880% | 32.24 | 1.59 | 15.66 |
| RCL NYSE Royal Caribbean Cruises |
51.7B | 52.2% | 440% | 17.57 | 0.77 | 38.05 |
| ENSG NASDAQ The Ensign |
7.43B | 10.1% | 251% | 25.26 | 1.38 | 16.19 |
| UTHR NASDAQ United Therapeutics |
13.1B | 20.2% | 168% | 11.83 | 1.43 | 18.55 |
| POWL NASDAQ Powell Industries |
1.98B | 31.2% | 747% | 12.50 | 0.89 | 32.34 |
| ALSN NYSE Allison Transmission |
7.57B | 13.1% | 189% | 10.69 | 1.59 | 44.28 |
| URI NYSE United Rentals |
38.1B | -5.7% | 503% | 15.06 | 1.18 | 29.87 |
| FSS NYSE Federal Signal |
4.36B | -7.34% | 189% | 20.39 | 1.35 | 18.24 |
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, missing the best spots allways by 10%)
4. Know when to sell
- Realizing it was a mistake to buy it at the first place
- The stock became wildly overvalued
- The company's moat has been destroyed/fundamentals are deteriorating
- You need the money to buy a house for your family, ..
Remember: we make money by not loosing it
- Risk Management: Take the opposite position and evaluate the risks, not just the chances.
- Highest-Quality only: Choose stocks so valuable, that you'd happily pass them on to your children.
- Rigorous Selection: If you could buy every year only one stock, would you still buy it?
Generic 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 > $5
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 like 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. - 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 Best Stocks to Buy by analyzing the earning sheets?
Business
- Low volatility of margins
Historically, gross margins have been stable and predictable - Pricing power
High gross margins > 30% - Low Capital Intensity
CAPEX/Sales < 5% and CAPEX/Operational Cash Flow < 15% - Cash Flow Returns on investment (CFROI)
(todo)
- Skin in the Game
Owner & Family > 20% of shares
How to identify Best Stocks to Buy by comparing financial ratios?
Business
- Moat
Sustainable, high Return on Invested Capital (ROIC > WACC)
by recurring revenues, high gross margins and low capital intensity - Pricing Power
Best CAPEX/Sales in Peer-Group
- Pattern of Disciplined Reinvestments
- Extensive Opportunities to Reinvest
- Reinvest for organic growth (ROIC > 20%, ROIC YoY)
- Acquisitions (hard to predict which M&A creates value; 60%-90% don't)
- Share buybacks (better than dividends)
- Dividends 20% - 25% of EPS (only in absence of value creating alternatives)
How to Analyze a Stock
Understand the Product
- Annual Reports
- Investor Presentations, Shareholder Letters
- In which different segments does the company make money
- How does the geographical split look like
- There are 1,000 resons to sell a stock, but only ONE to buy. So, which Insiders are buying their own stock?
- Check ROIC curve of the last 3-5 Years
- CAPEX/Sales < 5%
- CAPEX/Operating Cash Flow < 15%
- Interest Coverage Ratio (EBIT/Interest payments) > 10
- Net Debt / Free Cash Flow < 4
- Gross Margin > 30
- FCF Margin > 20
- Yearly Revenue Growth > 5%
- Yearly Earnings Growth > 7%
- Secular trend (urbanization, aging, cybersecurity, obesity, digital payments, …)