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Summary - Quality Stocks

This document summarizes key criteria from several books for finding high quality stocks. It recommends looking for companies with revenue growth over 10% annually, return on capital employed over 15% for non-financials or return on equity over 15% for financials, and reasonable debt levels. Additional criteria include understanding the business, favorable long-term economics, trustworthy management, and a sensible stock price valuation based on metrics like P/E ratio compared to historical averages. The document also advises limiting one's search to companies with a market capitalization over 100 crores.

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211 views5 pages

Summary - Quality Stocks

This document summarizes key criteria from several books for finding high quality stocks. It recommends looking for companies with revenue growth over 10% annually, return on capital employed over 15% for non-financials or return on equity over 15% for financials, and reasonable debt levels. Additional criteria include understanding the business, favorable long-term economics, trustworthy management, and a sensible stock price valuation based on metrics like P/E ratio compared to historical averages. The document also advises limiting one's search to companies with a market capitalization over 100 crores.

Uploaded by

sumon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Ways to Find Good Quality Stock

Summary of
Investing Books
Sumit Das
+91 7001922626 // smtds04@[Link]
Summary of Coffee can Investing, How to avoid loss and earn
consistently in Stock Market , Stocks to Riches , The Intelligent
Investor.
Book : How to avoid loss and earn consistently in Stock Market
 Expectations
 20 – 25% returns annually. A return at least double the FD and positive
returns considering inflation and taxes.
 Learn before you Earn. Investment in Knowledge provides the best returns.

 Stock Valuation
 P/E ratio is the most popular metric. However it is not to be used standalone.
Comparison with historical Average, peer comparison, broader market to be used to
value the current P/E.

 P/S ratio can be used for cyclicals (eg: Agri input companies or with one time
profit/loss impacts or turnarounds Eg: Arcelor-Mittal.)

 P/B ratio – Banking stocks (Eg: SBI or capital intensive Eg: Power projects)

 Criteria's
 If PE and P/B is less than 5 years average, PEG <0.5 – Undervalued – BEST
Investment Opportunity
 If PE and P/B is about average, PEG <= 1. Mediocre Opportunity
 PEG = 1- 2 – Hold. Don’t make fresh investments.
 PEG > 2 Overvalued. Sell
Book : How to avoid loss and earn consistently in Stock Market
 Criteria's
 Last 3 years and last 1 year annualized return is negative – Avoid
 Last 3 years annualized return <10 % – Could be a value trap. Approach with caution
 Last 1 year and last 3 years return > 10% – then consider to buy.
 ROE and ROCE >20% for the last 3 years

Not applicable for


 Debt to Equity < 1

Banking and
NBFC’s
 Promoter’s Pledging < 10%
 Compounded Annual Growth Rate (CAGR) Sales > 10%
 Compounded Annual Growth Rate CAGR Profit > 12%
 PE < 2(Avg. EPS growth of last 3 years)

 Minor Correction : 5 – 30 % fall from peak – Hold on to good stocks and get rid of poor quality ones

 Market Crash : More than a 50% fall – Move most of your portfolio into Gold /Cash and wait for
good opportunities.
Book : Coffee can Investing
 Invest in companies that have
• A business we understand
• Favorable long-term economics
• Able and trustworthy management
• A sensible price tag.

 Limit our search to companies with a minimum Market Capitalization of Rs.100 crore

 Look for companies that over the preceding decade have Grown Sales Each Year by at Least 10%

 Revenue Growth 10%

 Generating ROCE (pre-tax) of at least 15%

 For financial services stocks, ROE and sales growth 15%

 Debt Ratio Less than 1, if 0.5 available is much better


Book : Stocks to Riches
 For Non-financials
• Revenue > 10%
• ROCE > 15%

 For Financials
• Loan growth > 15%
• ROE > 15%

Book : The Intelligent Investor


 Market Cap > 200 Cr
 Current Assets > Current Liabilities.
 EPS 10 Years Growth at 1.33 Time 
 Must Paid dividends at least 20 Years
 Stock CMP shall not be more than 15 times if 3 years earning
 Safest way to Invest in Stock Market is ETF. Buy in Correction (Near 20 EMA and 50 EMA)

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