Happy value investing

2. To avoid value traps, only companies that made profits during the past five years were considered—29 companies fell out, leaving only 171 stocks. 3. Of these profitable companies, only those with at least 10% annualised net profit growth were considered—67 companies fell out, leaving only 104 stocks. 4. Next, only companies with positive operating margin were retained to ensure that the net profit is from business operations and not from other incomes—1 stock moved out, leaving 103 stocks. 5. While profits are good, they must justify the investment in the business. Only stocks with at least 10% ROCE were kept—8 companies fell through, leaving us with 95 stocks. 6. Also, the RONW should be at least 15% to ensure that only companies generating enough profits are considered. 17 companies moved out, leaving only 78 stocks. 7. The next filter was a debt to equity ratio of less than 2. None of the companies had a debtequity ratio of more than 2 so all 78 stocks remained. 8. Next, only stocks that paid dividends in the past five years and distributed at least 10% of their profits as dividend were kept—20 companies fell out, leaving us with 58 stocks. 9. A good company can be a bad buy at a high price. Stocks with a PE of over 20 were kept out—40 high priced stocks fell out, leaving us with 18 stocks. 10. Another valuation metric is the price to book value (PBV). The PBV can vary greatly, so we kept a liberal cut off of 5. Three companies got dropped, leaving us with 15 stocks.

by sandy17377@yahoo.com