RRX (Regal Rexnord) Predictability Rank

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What is Regal Rexnord Predictability Rank?

Warren Buffett said many times that the companies he likes are:

1. Simple businesses that he understands
2. that have predictable and proven earnings and
3. with economic moat
4. those can be bought at a reasonable price.

It is hard to quantify "simple businesses that he (Buffett) understands", so we will focus on the other three characteristics instead. In GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank, we will show that the businesses that have predictable and proven earnings are usually also simple businesses that an average person could understand.

GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.

Regal Rexnord Predictability Rank Calculation

In our database there are 2403 stocks that have been traded from Jan. 2, 1998 to Aug. 31, 2008. We have the complete 10-year financial data and trading prices of these companies for this period. We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earning before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business.

Our study may be subject to these biases and assumptions:

Dividend yields are not counted for investment returns
Effects of price changes due to spin-offs may not be fully adjusted
Study is subjected to survivorship bias due to de-listing, bankruptcy, LBO, M&A, etc.

The correlation between business predictability and investment returns of a company is showed below.

Correlation Between Business Predictability and Investment Returns

	Predictables	Non-Predictable	All stocks
Total Number of stocks	570	1833	2403
Total Lost Money	61	830	891
Total Lost More Than 50%	18	412	430
Total Lost More Than 90%	4	86	90
Average Gain	260.6%	100.0%	138.1%
Median Gain	150.0%	13.0%	39.0%
Maximum Gain	2852.0%	11483.0%	11483.0%
Maximum Loss	-100.0%	-100.0%	-100.0%
Annualized Average Gain	12.7%	6.7%	8.4%
Annualized Median Gain	8.9%	1.1%	3.1%

For the 570 predictable companies, we have seen strong correlation between the predictability of businesses and the stock performances over the past 10 years, regardless of the valuation of business at 1998. Accordingly, we have ranked the business predictability from 5-star to 1-star, as shown in this table.

Predictability Rank	5-Star	4.5-Star	4-Star	3.5-Star	3-Star	2.5-Star	2-Star	1-Star (non-predictable)	Average among all
% Out of All 2403 Stocks	3.3%	2.9%	3.7%	3.3%	3.3%	3.7%	3.3%	76.3%	100%
% that are in Loss (10y)	3%	10%	8%	9%	11%	18%	16%	45%	37%
Average Gain (10y)	364.6%	330.9%	278.0%	235.1%	243.5%	227.8%	154.8%	100.0%	138.1%
Median Gain (10y)	238.5%	193.5%	171.0%	159.0%	132.5%	113.5%	87.0%	13.0%	39.0%
Maximum Gainer	2228.0%	2547.0%	2452.0%	2852.0%	2432.0%	1892.0%	1807.0%	11483.0%	11483.0%
Maximum Loser	-82.0%	-53.0%	-67.0%	-100.0%	-83.0%	-100.0%	-78.0%	-100.0%	-100.0%
Annualized Average Gain	15.4%	14.6%	13.2%	12.0%	12.2%	11.7%	9.1%	6.7%	8.4%
Annualized Median Gain	12.1%	10.6%	9.8%	9.3%	8.2%	7.3%	6.0%	1.1%	3.1%

For detailed information about each predictability rank, please go to GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank

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Regal Rexnord Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Industrials » Industrial Products » Regal Rexnord Corp (NYSE:RRX) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

RRX:Mexico

Address

111 West Michigan Street, Milwaukee, WI, USA, 53203

Website

https://www.regalrexnord.com

Regal Rexnord Corp is in the engineering and manufacturing of industrial powertrain solutions, power transmission components, electric motors and electronic controls, air moving products, and specialty electrical components and systems, serving customers around the world. The four operating segments include Commercial Systems, Industrial Systems, Climate Solutions, and Motion Control Solutions.

Executives

Louis V. Pinkham	officer: Chief Executive Officer	100 FIRST STAMFORD PLACE, STAMFORD CT 06902
Thomas E Valentyn	officer: VP General Counsel & Secretary	200 STATE STREET, BELOIT WI 53511
Jerrald R Morton	officer: Segment President*	200 STATE STREET, BELOIT WI 53511
Theodore D Crandall	director	C/O ROCKWELL AUTOMATION INC, 1201 SOUTH SECOND STREET, MILWAUKEE WI 53204
Timothy A. Dickson	officer: SVP & Chief Digi & Info Ofc*	111 WEST MICHIGAN STREET, MILWAUKEE WI 53203
John Avampato	officer: VP & Chief Information Officer	200 STATE STREET, BELOIT WI 53511
Brooke Lang	officer: EVP and President, PES*	2090 BLAIRMONT DR, PITTSBURGH PA 15241
Michael P Doss	director	814 LIVINGSTON COURT, MARIETTA GA 30067
Alexander P Scarpelli	officer: VP, Corp. Controller and CAO*	200 STATE STREET, BELOIT WI 53511
John C Kunze	officer: Segment President*	200 STATE STREET, BELOIT WI 53511
Curtis W Stoelting	director	C/O RC2 CORPORATION, 1111 WEST 22ND STREET, SUITE 320, OAK BROOK IL 60523
Christopher L Doerr	director
Kevin J Zaba	officer: President, Motion Control Sol.	C/O REXNORD CORPORATION, P.O. BOX 2022, MILWAUKEE WI 53201
Robin A Walker-lee	director	C/O TRW AUTOMOTIVE, 12001 TECH CENTER DRIVE, LIVONIA MI 48150
Daniel J Klun	officer: VP, Corporate Controller	200 STATE STREET, BELOIT WI 53511