How to find a wealth creating stock?
It is a never ending quest, how to find a wealth creating stock? There are hundreds of ways of doing it and people probably give their entire life searching for that one way. But actually, to become successful it is very simple, just follow the footsteps of successful investors, how they have acquired their billions!! SAMCO stock rating is all about scanning the stocks with those set of smart parameters and rate them as AAA– to – C–to -PENNY. AAA being the best.
How successful Investors pick stocks?
“Both our operating and investment experience cause us to conclude that ‘turnarounds’ seldom turn and that the same energies and talent are much better employed in a wonderful business purchased at a fair price than in a poor business purchased at a bargain price”- Warren Buffet
Investment is not an exercise in hopes or expectations, it is also not about fantasizing the future based on some events or news or tips, but it is all about realistic assessment of the present by verifying the past track record, and then estimating a future, based on probability. Successful Investments are just like marriages, one sees the past history, the track record, with focus on understanding the present and then envisioning a future, but nonetheless future is always uncertain, but because, decisions are taken on the basis of facts present on hand, more often than not, they are sound. Same is true for Investments. The true wealth creating companies are wonderful today, and not, will become wonderful tomorrow or the turnaround cases. This is the key philosophy which has made Warren Buffet the second richest person on this planet. …‘turnarounds’ seldom turn and that the same energies and talent are much better employed in a wonderful business purchased at a fair price than in a poor business purchased at a bargain price”
Example If we go back in time, by forgetting what happened between then and now, an eye opening fact will emerge, so let’s do just that with a great wealth creating company. The company has ever since a decade grew its revenues and earnings consistently since last 11 years, by far a hugely laudable task. Its Return on Equity (ROE) is staggering at around 30%, consistently, year on year, such superior quality earnings are a great opportunity to invest. The debts are minimal and dividends are paid regularly. Stocks like this whether now or 5 or 10 years ago had the same kind of business strength and potential as it was then and now. These are the kind of wonderful businesses which Warren Buffet means that has the wealth creating ability. Whether it is bought 5 years ago or 10 years ago or are even bought now, these businesses have high probability to deliver great returns even in the future too, based on the present and past track records. The example below (name disclosed at the end) makes a clear case of wonderful business in the present tense, will be a wonderful business even in future tense or tomorrow also.
“More profitable companies today tend to be more profitable companies tomorrow although it gets reflected in their future stock prices, the market systematically underestimates this today, making their shares a relatively bargain.”– Warren Buffet
Below is one more example of great business then and now. 5 years or 10 years ago the company had the same kind of business wonderfulness as it is now. Buying such business has very high probability that they will keep on generating such kind of superior returns. These are true wealth creating compounders.
Below is an example of a wealth destroying business. It is visible so clearly, a rising debt equity ratio, 20 times debt vis a vis equity is insane, a negative return on equity consistently since last 5 years. It is on this occasion let’s refer to what Warren Buffet says..“‘turnarounds’ seldom turn and that the same energies and talent are much better employed in a wonderful business purchased at a fair price than in a poor business purchased at a bargain price”
The first company is ITC which gets AAA rating, second is Asian Paints also a AAA rated stock and third is Hindustan Construction a PENNY rated stock. Buffet’s philosophy of investing in wonderful companies with an established track record pays off handsomely in the long run.
What is SAMCO Stock Rating?
SAMCO Stock ratings, is a meticulously done study on almost every listed stock of NSE by studying annual reports and consolidated financial statements and scanning them objectively through the principles laid down by legendary investors, resulting into every stock being rated from AAA – AA – A – BBB – BB – B – CCC – CC – PENNY. Just like credit rating agencies rate the credit worthiness of the company, we have rated the business worthiness or the quality of the company. It’s like if every student gets a grade in the school for performance, why shouldn’t a stock be rated similarly if objective set of rating parameters are available.
The rating can act as a guide or the second opinion on the stock, which the users can rely upon before deciding whether to buy or not to buy and it also, highlights the ideal conditions when the stock will outperform and underperform.
How SAMCO Stock Rating identifies and rates wealth creating stocks?
Identifying wonderful companies with an established track record is the key philosophy on which the rating system is devised. Rather than evaluating the company based on just stock price movements, which by definition will fluctuate at all the times, instead one should analyze the character of the business. We at SAMCO have scanned the stocks objectively through the guiding torch of history’s greatest legendary investors by rating the stocks on 20 all encompassing vital business parameters, which effectively measures the underlying efficiency of business model, earnings growth and its quality, ability to generate free cash flow, constructive or destructive power of leverage, transparency and governance amongst several other parameters, each being rated on a scale of 1 to 10 culminating into a stock being rated on a weighted average basis and getting a ranking from AAA to PENNY. AAA being the best in terms of wealth creation possibilities and Penny being the worst in terms of wealth destroying.
Conclusion: Wonderfulness of the business has to be in the present tense and not in future tense. In the words of Warren Buffet “turnaround seldom turns and that the same energies and talent are much better employed in a wonderful business” immense wealth can be made. SAMCO stock rating brings out wonderful businesses for you just at a click. We therefore say with extremely high confidence that our Stock Rating process has filtered out wonderful businesses and bet, 9 out of 10 times our AAA rating will be a wealth creating stock and anyone who buys would be the owner of India’s finest quality businesses. We also bet, 8 out of 10 times our Penny rated stocks will be wealth destroyers. Not that the lower rated stocks can’t go up, they will, in the bull markets, but it is only when the tide turns and the markets recedes, the wonderfulness of businesses will help swim the tide and protect wealth, but a lower rated or PENNY stock will destroy all of it.
Time is a friend of wonderful business…….” Warren Buffet. We are sure that people associating with us shall always go for wonderful companies in their portfolio and overtime achieve enormous amount of wealth in their lifetime. Welcome to the world of intelligent stock picking. Welcome to SAMCO!!