With this issue, I am beginning a series presenting my best ideas. The companies listed below all share the same underlying characteristics except one. All are companies that have a history of consistently producing free cash flow, they are all profitable with high levels of return on invested capital and cash returns on invested capital. They consistently produce operating profits. Each company has a long term sales growth rate and a long term earnings growth rate of at least 7.0% and analysts forecast 3-5 year growth of 7.0% or more. Additionally, each company has low debt levels. Finally, each appears to be, in our estimation, undervalued.
The difference between the two groups of companies is the degree to which they are popular. The first group has seen its share price rise significantly over the past 52 weeks and shares are currently trading near their 52 week highs.
The second group shares all the same attributes as the first with the exception of popularity. This group is trading closer to their 52 week lows and share prices have dropped dramatically over the past 52 weeks.
The current popularity of the first group may auger well for the near future. The out-of-favor nature of the second group may provide for the best long term gains. Going forward, we will monitor share price changes.
This should be seen as a starting point for your own due diligence.
Disclaimer: I am long ARO.