Rule #1 Companies to Study

[colt45]

I don't want to get into a pissing contest over this and I certainly didn't mean to come across inconsiderate. So right up front I apologize for how my typed words may or may not have come across!

For the 10 years issue, I looked them up in InvesTools and their data only went back 7 years, so maybe that was a mistake. Also Oil is like a commodity, so I wouldn't put much stock in the rigs they own as a Rule #1.

I can't tell you how to look up Yahoo numbers on other sites (I'll leave that up to you) because again, I used InvesTools for the ROIC, but I will stand firm on those numbers.

Maybe it would be better to reverse the tables and have the persons suggesting companies explain why they are a Rule #1 company for them. Anyone can just throw out some ticker symbols. How about a high level overview of why you like Patterson-UTI Energy, Inc?

[Justin]

Ok I just ran a bunch of the companies listed in this thread. Perhaps all of them. *fights to catch breath* Most had adequate raw data to be tested, you will find those results in the homework forum.

There were a few, however, that for one reason or another I could not or chose not to run numbers on. I scribbled down some (very) short notes on why.

TEVA - bouncy roic
FCX - copper commodity. (i stay away from all commodites)
YHOO - crappy roic
ASVI - crappy roic
PTEN - incomplete data
UPL - crappy roic
SAY - investools had data missing from 1998-2000. dont know/care why
NBR - crappy roic
AKAM - only 7 years worth of data
BSTE - crappy roic

you probably notice that i disqualified most based on its ROIC. checking the ROIC is pretty much the 2nd or 3rd thing I do when scanning companies. It usually weeds em out pretty quick. There may be other things wrong with those companies, and likewise, there may be things that are right with those same companies. But my interpretation of the rule is when you cut corners, you get burned. Once I see ROIC's that are less than perfect, im on to the next one.

With 13,000 different companies, (and only needing 1 or 2 to attain wealth), Typically, I dont spend a lot of time trying to decide if a company's strengths outweigh its weaknesses.

[KevinM]

Justin,

I'm new to the forum (and to Rule#1) - thanks for putting this together. Hopefully it will be very useful.

Anyway, with respect to YHOO, I've been watching it as well. I owned some for a while and made a bunch of money and sold out and am now considering it again. You say that it has crappy roic, and a previous poster said the numbers were 3.6% (5yr) and -6.1% (10 yr).

I am using the "freebie" tools under MSN and Yahoo! and MSN has the 5 yr average at 11.3% and the 1 yr at 20.1%. Am I looking at the wrong numbers? I'm pulling up under Financial Results > Key Ratios > Investment Returns and looking at the Return On Capital numbers.

Thanks.

[oly]

Justin,

Aw man... You burst my bubble... I was all excited that I had found a company (ASVI) that passed the 4M's and the Big 5 numbers for me. I used Andy's charts and had come up with a MOS of 68.23 and current price of $20.48. With 1 year and 5 year ROIC at 12.0% and 18.5% respectively. I was just waiting for the 3 tools to say to buy...
I looked at your homework page and invest tools came up with a lot different numbers than what I had - MOS of 25.32. My questions for you are; 1. what did you pay for Investools? 2. Do you think it is worth the price? 3. I seem to be having a hard time finding companies that pass the 4M's with good Big 5 numbers. Any suggestions?

Thanks

[Justin]

Originally Posted by KevinM

Justin,

Anyway, with respect to YHOO, I've been watching it as well. I owned some for a while and made a bunch of money and sold out and am now considering it again. You say that it has crappy roic, and a previous poster said the numbers were 3.6% (5yr) and -6.1% (10 yr).

I am using the "freebie" tools under MSN and Yahoo! and MSN has the 5 yr average at 11.3% and the 1 yr at 20.1%. Am I looking at the wrong numbers? I'm pulling up under Financial Results > Key Ratios > Investment Returns and looking at the Return On Capital numbers.

Thanks.

Hello Kevin, very glad you found us here! I checked again to make sure I didn't fudge the ROIC numbers and took a screenshot of what InvesTools reports the roic for the last 10 years.


I am not familiar enough with MSN to know if we are looking at the same numbers. Perhaps another member here can shed some light?

[Justin]

Originally Posted by oly

My questions for you are; 1. what did you pay for Investools? 2. Do you think it is worth the price? 3. I seem to be having a hard time finding companies that pass the 4M's with good Big 5 numbers. Any suggestions?

First let me say that my chart reflects how I personally Value the business. I tend to be a little bit more conservative in my numbers than maybe some others. So if our numbers arent exact, don't let that discourage you. Our ROIC's are pretty similar, yet you didn't mention what you entered for your Rule #1 Growthrate, or its chosen EPS numbers or the Rule #1 PE you chose. For me, the numbers I personally felt comfortable with were a Rule #1 Growthrate of 15%, the TTM EPS of 1.70, and a Rule #1 PE of 17. Each of these three factors will have some impact on the final MOS price. So see how your factors compare with mine, and if your numbers differ than mine, definately look into that to see who has a better grasp on what is accurate. A lot of times, I'll replace accuracy with just being extra conservative.

In this case, I was quite conservative based on the two EPS declines of 1999 and 2001. Not yet having looked into the reason behind that rhyme, I took the cautious route.

It is worth the price if you spend a lot of time playing with numbers. I love analysing companies. It's almost a hobby for me so to me its definately worth it. Using InvesTools in tandem with my spreadsheet I can knock out a companies Big Five/MOS numbers in about 5-7 minutes, so I gladly pay the 600$ annually. But that is very much an opinion it just depends on the Investor.

As far as having a hard time finding companies that pass the 4M's and Big Five Numbers. Yes I have a very hard time with it too. The simple truth is that as Rule #1 Investors, we seek perfection in our investments. Since businesses that could be considered perfect are so few and far between, it does certainly take some digging. Almost like fishing in a way lol. I've fished many many times and came home empty handed. But once you do find that fish - that perfect wonderful business - you dont really need to search anymore.

If the Rule suggests we put all our eggs in one basket, (as it clearly does), we gotta be sure to watch that damn basket. Settle for nothing less than perfect. You will find them!

[KevinM]

Justin,

This is very interesting. After I sent my previous post, I checked back with the Rule #1 book to see where Phil was pulling his ROIC numbers and sure enough, right where I am (see pg. 226 for his example using Cheesecake Factory). Here's the link to the page from MSN for YHOO. So I wonder why there's such a big difference.

http://moneycentral.msn.com/investor...ns&Symbol=YHOO

[fremontwagners]

Here are some of the stocks from our WatchList we think are good Rule 1 candidates. Their numbers meet the criteria for the Big 5 and they have a MOS, according to our calculations. (We use the Valuation Analysis on Investtools to find companies that they say have a MOS, and then we reduce the growth rate in our own calculations so that our MOS is more conservative than what the Investtools' analysts' predict.) These stocks may not be in a strong industry uptrend at this time and therefore are not necessarily strong buy candidates right now, but we think they warrant watching. We are interested in hearing your thoughts on these companies.

CWTR
CTSH
CCRT
EBAY
UNT

[mcgelligot]

I didn't think that a 12-18 percent ROIC was all that bad. I originally found this one on the blog on Phil's website:
http://philtown.typepad.com/phil_tow...omework_a.html

I don't think any of the fundementals have changed. It still has good numbers, moat, management, and right now the green arrows are all turning positive. Its current price is way below MOS no matter how you calculate it. With the most conservative numbers I got an MOS of 28. With more historically accurate numbers, I got and MOS of about 35.

[Neocat]

I did a very lazy chart that was similar. I just took the homework posts and used the MOS from them and made a chart that would update current prices. This is just numbers - no check for a moat, leadership, etc.

To download the file, click on the image that comes up from the following link: http://www.mrgillsconstruction.com/Stock_stuff