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Have not written about specific stocks here so far, so venturing into them for the first time. So I will start with a list of good businesses at a decent price.
Most of these businesses are good business models, many of them with repeat revenue potential, most have a strong brand in the eyes of customers or employees and decent management.
Nevertheless, I put them through a filter of questions for which the answers were positive while making this list. Here is the list of questions:
1. What do the key metrics say? RoE, NPM, D/E ratio, Market Cap? Are earnings, ROE in a consistent uptrend? Does it retain earnings and does reinvestment lead to similar returns?
2. Business brand – how strong is it for its customers to get attracted and to stay? If someone had lots of money, can he destroy it?
3. Is the business simple to understand, with a clear core competence? Does it have a clear monopoly or preferred choice kind of position? Can it raise prices without affecting demand?
4. How is the management quality in general?
5. Will the business last for 10 yrs?
6. Will good employees aspire or join the company if they get an offer?
7. Is the price offered by Mr Market reasonable or is there a need to wait for a good price?
So here goes the shopping list – the first one (in order of approximate market cap)
1. TCS
2. Infosys
3. ITC
4. HDFC Bank
5. Larsen and Toubro
6. HDFC
7. Tata Steel
8. Bajaj Auto
9. Maruti Suzuki
10. Asian Paints
11. Crompton Greaves
12. Castrol India
13. Colgate Palmolive
Businesses that could not make it to the first list, but are worthwhile candidates to a second list. The answers to all questions are not positive, but still close:
1. Bosch
2. Shriram Transport Finance
3. Cummins India
4. Exide Industries
5. Pidilite Industries
6. Crisil
I do not want to end with a ‘disclaimer’ like most advisory statements, but suffice it to say that most of these from the two lists are good businesses that are being offered by Mr Market at a decent price. Will the businesses stay good forever? I do not know, but the likelihood of they staying that way for a few years is high. Will the prices get better? I do not know, but if they get better, the opportunity to improve long term returns gets better. Happy Shopping!