Is it dividends, cash flow or asset quality? Should a strong balance sheet be the focus or growth potential? How important is leadership compared to debt?
These are some of the issues discussed in the list
11 characteristics of the best stocks to invest in, released yesterday at the Auckland Investment Conference.
Craigs Investment Partners hosts its annual investor day in Cordis, inviting business leaders to talk about what they’re doing and how their companies are growing.
The lineup includes Mainfreight Managing Director Don Braid, Fisher & Paykel Healthcare Managing Director Lewis Gradon, Fletcher Building CFO Bevan McKenzie, Goodman Property CEO John Dakin, Sky TV CEO Sophie Moloney, Craig Head of Private Wealth and Research Mark Lister and Serko CEO Darrin Grafton.
We all have our favorite benchmarks for investing, Craig said, but its list also includes stocks to avoid, saying companies won’t buy stocks that don’t meet the criteria outlined in their report.
Companies with a track record of disappointing the market are treated with caution. Those facing more regulatory risk also deserve attention, Craigs warned.
The 11 most important factors it lists are:
1. Sustainable Growth Dividends – Focus on revenue is a key metric, and those that pay attractive dividends and have growth potential are important.
2. Financially sound – Lower debt levels are preferred. Too much debt makes the company vulnerable to a recession.
3. Competitive advantage – Obvious and defensible advantages are important, large companies often have the size and financial strength over smaller competitors.
4. Leadership – Difficult to measure, but quality and experience of management and board are key.
5. High-quality assets – Especially suitable for infrastructure and real estate business.
6. Growth potential – It doesn’t make sense to buy a business that has no growth potential. it is necessary.
7. Generation of cash flow – The lifeblood of the company.
8. Quality and Defense – The core of the portfolio should consist of defensive quality stocks.
9. Reasonable valuation – “None of the above matter if a company is trading at an exorbitant valuation”.
10. Portfolio Fit – Your investments should add another layer of diversification, branching into different industries or providing exposure to new geographies, currencies or markets.
11. Sustainability Features – Environmental factors that affect the way a business operates and its long-term future.
Craigs also warns of nine factors to watch out for or avoid.
Declining profit margins, disappointing market record, excessive debt, high regulatory risk, exorbitant valuations, exorbitant payout ratios, limited growth, lack of scale and sustainability issues are among its problems or dangers On the list of signals, it should serve as a warning to investors.
Craig’s investment book for those attending yesterday’s conference also features two pages of some of the larger NZX companies: Fletcher Building, Serko, Mainfreight, Sky TV, Fisher & Paykel Healthcare, Goodman Property Trust and Meridian Energy.
Craigs said its investment philosophy is to focus on the core elements. These are a focus on quality across all asset classes, building a portfolio that can generate income today and grow over time, and a conservative approach to risk management.
It said recognizing the importance of prudence and broad diversification was the fourth pillar of its investment philosophy.
In this day and age, inflation protection should be a key objective. If possible, the dividend income stream and capital value of the portfolio should grow at least in line with inflation.
Leave a Reply