My preference is to search for companies with predictable and stable business models. Since I believe companies with this characteristic are fertile hunting grounds to look for moats, or moats in-the-making, I use Gurufocus' Predictability Rating to help me look for this trait (read a full description here) . Additionally, I like companies with low, or no, debt (especially if they're small); have high returns on capital, and are growing sales, EBITDA, and earnings at double-digit clips. The screen parameters were:
- Predictability rating = 5 star
- Market cap between $5B and $20B
- ROC > 15%
- Max Debt/Equity < 0.2
- 10-yr Revenue Growth > 10%
- 10-yr EBITDA Growth >10%
- 10-yr EPS Growth > 10%
The search resulted in 5 companies from various industries: Autozone (AZO), Garmin Ltd (GRMN), Ralph Lauren (RL), Smith & Nephew (SNN), and Tractor Supply (TSCO).
Let's take a quick look.
(NOTE: this article uses Gurufocus' Interactive Charts. To add/remove an item from view, click on it in the legend at the top of the chart).
Autozone is the nation's leading specialty retailer of automotive parts and accessories, primarily focusing on do-it-yourself customers. Each of the company's auto parts store carries an extensive product line for cars, vans and light trucks, including new and re-manufactured automotive hard parts, maintenance items, and accessories. Many of the company's domestic auto parts stores also has a commercial sales program, which provides commercial credit and prompt delivery of parts and other products to local repair garages, dealers and service stations.
AZO has a market cap of $14.9B, no dividend yield, and sported a ROC of 43%. Of the Gurus tracked on Gurufocus, 14 of them own a total of 14.16% of the share count. The top holder is Eddie Lampert, owning 7.54% of the shares.
In the last 10 years, AZO has been able to grow revenue at 14.7%; EBITDA at 18.5%; and FCF at 8%. It appears to be trading in the middle of its historical ratios at $381.73 (see below). It currently has the following multiples: P/E=17.9; P/S=1.9; and P/B=0.
Ralph Lauren (RL):
Ralph Lauren Corporation is engaged in designing, marketing, and distributing men's, women's and children's apparel, accessories, fragrances, and home furnishings. Its operations include Wholesale, Retail and Licensing. It offers its products under the Polo by Ralph Lauren, Ralph Lauren Purple Label, Ralph Lauren Women's Collection, Black Label, Blue Label, Lauren by Ralph Lauren, RRL, RLX, Rugby, Ralph Lauren Children's wear, American Living, Chaps, and Club Monaco brand names. Ralph Lauren Corporation, formerly known as Polo Ralph Lauren Corporation, is based in New York, New York.
RL has a market cap of $15.9B, a 0.5% dividend yield, and a current ROC of 18.2%. Thirteen Gurus own a total of 7.75% of the shares. The top share holder is Steve Mandel with 5.07% of the shares.
Over the last decade, RL has grown revenues at 10.7%; EBITDA at 14.1%, and book value at 15%. It currently trades near $171, near the upper range of its historical price multiples, with a current P/E=25; P/S=2.8; and P/B=4.5.
Garmin Ltd (GRMN):
Garmin International designs, manufactures, and markets navigation and communications equipment for a variety of markets, including aviation, marine, automotive, cellular, OEM, and general recreation. Specifically, the company aims to enrich the lives of customers, suppliers, distributors, and employees by providing the very best products that offer superior quality, safety, and operational features at affordable prices.
GRMN's market cap is $8.7B with a 3.6% dividend yield, and a current ROC of 16.7%. Eight Gurus own a total of 0.10% of the shares. The top share holder is Louis Moore Bacon with 0.05% of the shares.
GRMN 10-year growth figures are: revenues at 28.4%; EBITDA at 20.7%, FCF at 26.6%, and book value at 24.5%. It currently trades near $44, in the lower end of its historical price multiples, currently P/E=16.8; P/S=3.2; and P/B=2.7.
Tractor Supply (TSCO):
Tractor Supply Company is a specialty retailer which supplies the daily farming and maintenance needs of its target customers: hobby, part-time and full-time farmers and ranchers, as well as rural customers, contractors and tradesmen.
TSCO has a market cap of $7B and a 0.5% dividend yield. It's business model produced an ROC of 23.4%. Eleven Gurus own 2.18% of the shares. The top guru shareholder is Ron Baron, with 0.55%
TSCO, in the last decade, grew revenue at 16%; EBITDA at 19.9%; and book value at 18.1%. It trades for $99.47 in the upper range of its historical valuation bands.
Smith & Newphew (SNN)
Smith & Nephew is a global medical device company. The company markets clinically superior products, principally in orthopedic, endoscopy and wound management to deliver cost-effective solutions, significant physician advantage and real patient benefits. A continuous process of supplying new and innovative products is supported by substantial R&D investment to deliver new levels of healing to patients throughout the world.
SNN's market cap is $8.5B and it has a 1.6% dividend yield. It produced a current ROC of 20.5%. Five Gurus own a total of 1.34% of the shares; the top holder is Ken Fisher with 1.17%.
SNN grew revenue at 10.3%; EBITDA at 13.8%; and book value at 16%. It trades near $49 in the lower range of its historical bands. Current price multiples are: P/E=12.9; P/S=2; and P/B=2.7.
Of course, screen results are just the start to an investment process. These 5 companies, however, look like promising candidates for further research as they have predictable/stable business models, low-/no-debt, high returns on capital, and are growing sales, and earnings, at double-digit rates.
Not all of these companies are cheap, but if you find they're what you're looking for, determine a fair value and add it to your wish list for when the price is right.
Find stocks matching many criteria with GuruFocus’ new All-in-One screener here.
Disclosure: No positions in any of the companies mentioned.
DISCLAIMER: This review/analysis is provided for informational and entertainment purposes only and is the opinion of the author. The information and content contained herein should not be construed as a recommendation to invest or trade in any type of security. Neither the information, nor any opinion expressed, constitutes a solicitation of the purchase or sale of any security or investment of any kind. Conduct your own research and due diligence.
Also check out:
- Ken Fisher Undervalued Stocks
- Ken Fisher Top Growth Companies
- Ken Fisher High Yield stocks, and
- Stocks that Ken Fisher keeps buying
- Louis Moore Bacon Undervalued Stocks
- Louis Moore Bacon Top Growth Companies
- Louis Moore Bacon High Yield stocks, and
- Stocks that Louis Moore Bacon keeps buying