Based on Bananawind's 5 stock portfolio, I said the following on the 18th April 2007 (See #139 below) ...
"BLDR
CECO
FCX
PACR
WDC
the only stock I believe one should concentrate on is FCX.
It has the best comprehensive set of Fundamentals.
For one thing, BLDR's Operating Margin is currently too low to ensure an above average future price performance in the medium to longer term.
CECO's Turnover has been falling.
PACR's Turnover has also been fairly static and uninspiring of late.
WDC may be one to keep an eye on. Personally, I believe it's price deserves to be higher based on its current Fundamentals, and relatively low P/E."
I believe an update, 3 months later, would now be in order, based on the prices of those stocks on the 18/4/2007, and what their current prices now stand at ....
FCX :- $70.15 then. $89.95 now. 28.23% Up.
BLDR :- $16.53 then. $15.24 now. -7.80% Down.
CECO :- $30.19 then. $29.94 now. -0.83% Down.
PACR :- $27.62 then. $21.99 now. -20.38% Down.
WDC :- $17.13 then. $21.00 now. 22.59% Up.
I believe these numbers support the particular Fundamental Criteria that we concentrate on, and use in our company analysis (they certainly don't include P/Bk or P/S !). They include what Greenblatt concentrates on, but there are additional ones which we believe give a more comprehensive picture of a company's current financial "state of affairs".
Therefore it comes as no surprise that FCX is Top of the list, with WDC a close second.
Here again we have a list of stocks which one could have "graded" in terms of the quality of their Fundamentals.
By including all 5 in one's Portfolio, and assuming an equal investment in each, one would have averaged (28.23-7.8-0.83-20.38+22.59)/5 = 4.36%.
However, if one had narrowed down one's choice to those companies that exhibited the best all round Fundamental Criteria, viz. FCX and WDC, then the Capital Gain would have been (28.23+22.59)/2 = 25.41%.
This, I suggest, would be in line with Warren Buffett's own strategy of putting more of one's investment in the top stock's in one's list, as opposed to diluting one's Returns by including stocks with less favourable Fundamental Criteria.
"More of ..." and "Diversification" is not always the way to go, especially if one has confidence in the Quality and Integrity of one's Fundamental Criteria.
Any company that is currently meeting, or exceeding, ALL of the important and relevant Fundamental ratio targets, could only be achieving that if it was basically "firing on important financial cylinders".
By so doing, it's unlikely that it won't exhibit a medium to longer term upward price trend, as FCX has managed to do in recent times.
Conversely, those companies that aren't managing this, are unlikely to keep pace, so why put your hard earned cash into them ? |
