Phoenix stocks – identifying stocks to buy

Posted on 17 May 2009

Looking for candidates to buy, how about these criteria?

1) A growing business – business with wide and growing opportunities

2) Earnings certainty – a sustainable competitive advantage – strong pricing power

3) Mispriced opportunity – misunderstood business situation

4) Quality management/board – with a track record and significant insider or founder ownership and buying

5) Strong returns on invested capital and ROE

6) Solid balance sheet – low debt and ideally not a capital intensive business

7) Strong, stable cashflows – cashflows as good or better than net income

Buying back shares – EPS accretive

9) Small market capitalisation – brokers only like companies that need to pay them fees, small is beautiful but unloved

10) Attractive valuation – sustainable P/E below 10x and preferably trading below NTA

Category: Investing rules

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