GMG Finding a Stock Primer (2 17 2016)
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The document outlines criteria and approaches for finding stocks to invest in. It discusses looking for companies with economic moats, market leadership, healthy financials, rational valuation, positive earnings trends, and exposure to secular growth trends. A top-down approach is recommended starting with macroeconomic analysis, identifying global trends, analyzing industries, and picking industry leaders. Specific stock screening tools are also presented, including Bloomberg, 4-traders, finviz, Reuters, and Interactive Brokers screeners. Backtesting, identifying relative strength leaders, and using watch lists and portfolio management tools are also covered.
GMG Finding a Stock Primer (2 17 2016)
- 1. How to Find Stocks
- 2. GMG Investing Criteria 1. Economic Moats 2. Market Leader 3. Healthy Financials 4. Rational Valuation 5. Positive Earnings Trend 6. Secular Trends
- 3. GMG Investing Criteria 1. Economic Moats – Unique market advantage – Significant barriers to entry to maintain long run growth 2. Market Leader – Management theory predicts industry leaders perform best over time – Proven business model within industry – Best positioned for taking advantage of industry growth
- 4. GMG Investing Criteria 3. Healthy Financials – Debt coverage/leverage – Sustained operating margins – Revenue/NI growth – CapEx expenditures and reinvestment 4. Rational Valuation – P/E ratio and Boom/Bust macro context – EV/EBITDA trading multiple – DCF, intrinsic valuation
- 5. GMG Investing Criteria 5. Positive Earnings Trend – Dividends and EPS – Earnings trends and analyst expectations – Understanding causes of revenue growth 6. Secular Trends – Growth potential of country and industry sector – Other macro trends e.g. interest rates/commodity prices
- 6. Top-Down Approach Begins with Macro Macroeconomic Analysis 1. Current State of Global Economy 2. Global trends 3. Analyze industry of focus 4. Pick industry leaders
- 7. Top-Down Approach: Current State of Global Economy • Current State of Global Economy – Chinese economic growth slowing – Recent equity market volatility – Oil supply glut ~ $32/Barrel – International policy uncertainty • Brexit and Grexit • US Fed roadmap • Moving exchange rates
- 8. Brent Crude Price Chart
- 9. Euro to USD
- 10. Top Down Approach: Global Trends • Global Trends – Depressed oil prices: Winners and losers • Favorable consumer trend for net oil importers: Poland, India, Chile, and Kenya • Economic uncertainty for net oil exporters: Nigeria, Russia, and Venezuela – Appreciating USD relative to other EM currencies • Positive outlook for manufacturing and export industries • Decreases purchasing power of citizens – Chinese economic turbulence • Slowing GPD growth and signs of financial market uncertainty plague equity investments • Government tightening control of financial regulations
- 13. Top Down Approach: Pick an Industry • Healthcare Industry Sector – EM markets have seen a very large growth in pharmaceutics sales: Brazil, Russia, India, China, and South Africa – Rising drug prices are an opportunity for BioSimilar drugs – New tech advances: wearable technology, patentable R&D findings (pipeline) – Opportunities in generics and hospital facility development in EM markets
- 14. Top-Down Approach: Industry Leaders • Identification Sources – Bloomberg News – Wall Street Journal (WSJ) – Financial Times (FT) – Seeking Alpha • Use Bloomberg Industry Market Leaders: http://www.bloomberg.com/visual- data/industries/rank/name:market-share
- 15. Bottom-Up Approch Finding stocks based on our Investment Criteria Use various Stock Screeners 1.Bloomberg Terminal Screener* 2.www.4-traders.com Screener 3.finviz.com Screener 4.Reuter Screener 5.Brokers Screener - Interactive Broker’s
- 16. Bloomberg Terminal: EQS Function Hit “EQS” then “GO” in the terminal Why BB Terminal? • Fancy and Cover broad markets • ***BB can exclude some interesting companies if they dont have information. • LEARN HOW TO USE IT! BB is really powerful.
- 17. EQS 101
- 18. Select Regions
- 19. Select Sectors
- 20. Save as PDF, Excel
- 21. Back Testing
- 22. Alternative way to spot LEADER
- 24. Relative Strength - Leaders
- 25. Relative Strength - Leaders
- 26. Finviz Screener
- 27. Reuter Screener
- 28. Reuter Screener
- 31. Watch Lists