By Santiago García-Mussons
Investing for the long term is simple:
Buy good businesses and keep them, compound interest does its job.
Next:
- 7 keys to recognize a quality company.
- 7 keys to the Top Quality Opportunities portfolio.
Thresholds vary by sector. We use it as first filter and then we analyze in depth.
1) Income
- Do they grow year after year?
- Double digits (+10%)?
- Example: Microsoft (+10.2%)
2) Benefit
- Do they grow year after year?
- Double digits (+10%)?
- Example: Veeva Systems (+47%)
3) Net Margin
- More than 15%?
- Does it grow year after year?
- Example: Brown & Brown (+4.3% improvement in margin each year)
4) Free Cash Flow Margin (FCF)
- More than 15%?
- Does it grow year after year?
- Example: Nvidia (+9.5% annual improvement in margin)
5) Debt
- Do you have more cash than debt (negative net debt)?
- Can it be paid in 1-2 years of FCF?
- Does it represent less than 40%?
- Example: Shopify (has no debt and increases distance)
Net debt = Debt – Cash
6) ROE and ROIC ratios
- Do they grow year after year?
- Above 20%?
- Example: ASML (continuous improvement and above 20%)
7) Earnings per Share
- Do they grow year after year?
- Double digits (+10%)?
- Example: amazon (since 2017 it has improved 50% each year).
So far the 7 easy keys to quickly detect if a company is worth analyzing in more detail.
7 keys to the Top Quality Opportunities portfolio
Now I am going to show you the Top Quality Opportunities stock portfolio with the 7 keys and check if it meets the criteria.
1) Income
- Do they grow year after year? ✅
- Double digits (+10%)? ✅ +21.5% ‼️
Average growth of income in the last 1, 3 and 5 years (annual) of the stock portfolio of Top Quality Opportunities.
2) Benefit
- Do they grow year after year? ✅
- Double digits (+10%)? ✅ +37% ‼️
Average growth of benefits in the last 1, 3, 5 and 10 years (annual) of the stock portfolio of Top Quality Opportunities.
3) Net Margin
- More than 15%? ✅ +27.4% ‼️
- Does it grow year after year? ✅
Net Margin middle of the stock portfolio Top Quality Opportunities in the last 1, 3, 5 and 10 years.
4) Free Cash Flow Margin (FCF)
- More than 15%? ✅ +28.8% ‼️
- Does it grow year after year? ✅
Free Cash Flow Margin middle of the stock portfolio Top Quality Opportunities in recent years.
5) Debt
- Do you have more cash than debt (negative net debt)? ✅
- Can it be paid in 1-2 years of FCF? ✅
- Does it represent less than 40%? ✅
Net Debt average stock portfolio Top Quality Opportunities.
6) ROE and ROIC ratios
- Do they grow year after year? ✅
- Above 20%? ✅ +39.1% and 45.1% ‼️
Ratios ROE and ROIC stock portfolio means Top Quality Opportunities.
7) Earnings per Share
- Do they grow year after year? ✅
- Double digits (+10%)? ✅
Growth of the Earnings per Share (diluted) stock portfolio media Top Quality Opportunities.
These 7 points of Top Quality Opportunities They clearly reflect how the fund’s stock portfolio is very high quality.
True quality.
They are extraordinary and enviable metrics.