What to track? Since ~4000 stocks are listed on the Indian exchanges, this question was always in my thoughts for a long time and I was unable to answer it logically till few days back. However, on modifying the question to ‘What businesses I will be ‘OK’ to hold even if market becomes too pessimistic?’, the answer was finally possible - ‘Businesses that are able to grow sales on a 5 Yr. basis and generate Net Income and Operating cash flow on consistent basis without raising too much debt.’
In order to arrive at the spectrum of businesses that I shall focus upon, the answer was converted to measurable parameters.
How this list is arrived at? The approach used the below listed filtering criteria’s:
- Debt/Equity Ratio < 1 [Reduced count of ~4000 count to ~800]
- Parsed (manually using screener’s data) through the 3 financial statements (P&L, BS and CF) of each business for the evidence of the below characteristics in the priority order noted below -
- Sales growth on a 5 Yr. basis. Overruled in case of few names that show strong Net Income and Operating cash flow
- Consistency in net profit (NP)
- Consistency in Operating cash flow (OCF) such that OCF/NP > 0.7 for most of the years (In particular for the latest 5 Yrs)
- Usage of the Operating Cash Flow in the last 5 Yrs.: Checked it’s distribution among Capex, Dividend payment and Debt Repayment or Cash/Investment increase
- Reducing or constant Borrowing Trend
Final Result: 138 businesses spread across 43 Sectors (refer below attached)
Track-List.xlsx (11.6 KB)
What Next? Prepare for the right opportunity doing the below activities -
- Read about the individual businesses and their industry.
- Firm up understanding of the opportunity size and the management at helm. This shall prune few more names from this list.
- Arrive at the intrinsic value on the basis of DCF (DDM in particular as dividend is the real cash flow to an individual equity investor) using fundamental parameters such as ROE, Dividend, Growth rate, sustainability of the businesses. I am convinced by the framework provided by @Yogesh in the thread (Valuation) and plan to use the same .
- Add the valued business to the watchlist, track it’s quarterly updates, and monitor it’s price for the reasonable offer. Businesses with the characteristics that I used to shortlist mostly trade at a premium unless one gets lucky due to factors beyond the control of the business.
Note:
- Immensely benefitted from https://www.screener.in/ while doing this exercise. Thanks to @ayushmit for such a wonderful tool. Your tool is Excellent. Stopped myself from saying awesome as you folks keep innovating and +vely surprising on a regular basis!!!
- Since I keep benefitting from this forum, I was influenced by the reciprocation tendency and felt obliged to share the list for everyone’s benefit.
- Not a Buy/Sell advice. Pls do your due diligence.