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Companies

  • Which A1’s look expensive at the moment?

    Roger Montgomery
    July 31, 2010

    While share prices move every day, valuations move much more slowly.  But move they do.  Especially in the next few weeks as companies report their annual results.  Many analysts however and a great deal of the commentary will focus on earnings growth, revenue growth and dividend growth but all that matters is whether return on equity is being maintained and the company is increasing in intrinsic value.  Once you have established that and found a company that ticks every box, then all that matters is buying at a big discount to intrinsic value.

    I have been saying for some time that the vast majority of A1 and A2 companies appear to be expensive.

    In response to several requests to be more specific on the subject, I thought I would list a few companies that I believe are currently above their intrinsic values.

    The following companies are those that come immediately to mind and that I believe are both very high in quality AND very high in price:  Servecorp, ERA, Seek, Navitas, ASG Group, Domino’s Pizza, Fleetwood, Carsales, David Jones, Cochlear and Reckon.

    Obviously, I will be interested in the full year results for these companies and indeed every company, which may change the intrinsic values dramatically.  Moreover, I am NOT predicting that the shares of these companies will fall in price.  As much as I would like to be able to share that information with you, I just do not have it.  I am not able forecast share prices and as I have repeatedly noted, estimating the value of a company is not the same as predicting their share price.

    For now however, those listed above look sufficiently expensive for me to conduct research on other companies.  Be sure to seek and take personal professional advice BEFORE undertaking any activity in shares or derivatives or any securities.

    Posted by Roger Montgomery

    31 July 2010

    by Roger Montgomery Posted in Companies, Investing Education.
  • A C5? But it’s a blue chip!

    Roger Montgomery
    July 23, 2010

    Last week on the Sky Business Channel Peter Switzer asked me for one ‘blue chip’ stock that I rate as ‘A1’.

    So I asked… what is a blue chip? Peter described such businesses as having a very good reputation and great brand name, pay a good dividend and have stood the test of time. Such businesses, Peter said, also tend to go up with the market.

    Whilst I couldn’t name an A1 blue chip, I can name plenty that fall in my C4 and C5 categories.

    Last night I revealed 18 ASX-listed businesses that some investors consider ‘blue chips’, yet don’t make my A1 grade. Westfield, Transurban, Asciano, Lend Lease, Ten Network and Virgin Blue are just a few.

    Switzer TV with Peter Switzer was broadcast on 22 July 2010 on the Sky Business Channel. Visit www.rogermontgomery.com to secure your First Edition hard back of Value.able, my step-by-step guide to valuing the best companies and buying them for less than they are worth.

    This video is provided by Switzer.com.au, an online portal for retail investors and small business owners. Switzer also provides Financial Planning and Business Coaching services.

    Posted by Roger Montgomery, 23 July 2010.

    by Roger Montgomery Posted in Companies, Investing Education.
  • Where are my valuations Roger?

    Roger Montgomery
    July 22, 2010

    Bipolar markets appear to be the anticipated outcome for the next few years. Investors seem to be in the middle of a tug-o-war between inflation and deflation, recovery or double dip recession.

    Pimco’s Bill Gross says we have entered the era of the “new normal’ – expect low aggregate returns. Jeremy Grantham at GMO says that attributing the chance of recovery at 25% is “generous” and the US will be lucky to achieve 2% economic growth over the next seven years. And David Rosenberg at Gluskin Sheff says deflation is more likely than inflation, describing the stock market as meat grinder – “No return for a decade and yet plenty of sleepless nights on this roller-coaster ride.” Keep in mind David is a perennial bear. I remember during my days as trader being told; listen to the bears but don’t sell until they turn bullish!

    Over at the bullish camp PuruSaxena says “the ongoing range trading should conclude with a bullish resolution” and cites Intel’s best quarter ever and JP Morgan’s analyst estimates-beating performance as justification.

    At Montgomery Inc. ‘we’ don’t claim to know how the world’s debt issues will be resolved. What we do know is that you cannot solve them with more borrowing.

    In Australia many ‘analysts’ are pointing to the fact that the recent rally has not been accompanied by much volume. Indeed, one of my friends who is a broker said they can “hear pins drop” in their office. But before you rush out and sell in anticipation of some imminent correction (I am not forecasting anything), have a look at the volume that accompanied the beginning of the bounce from the March 2009 lows. They were relatively light too. Perhaps that means the whole thing will indeed end in a massive correction that will see even lower lows! (I am not forecasting anything).

    Stock market investing however need not be so mysterious and confusing. Instead of focusing on stocks, focus on businesses. Instead of focusing on prices, focus on values. When bargains are available it is obvious. When the banks were at their lows, there was no justification and large discounts to intrinsic value were evident for three of the big four. Their prices were following the pattern of their global peers that were each losing billions and being bailed out or nationalised. While their prices were on their knees, their values were being driven by the fact they were reporting multibillion-dollar profits. Focus on the business – don’t take your cues from share prices.

    More importantly, when bargains are available you are writing to me with requests to value high quality companies. “What is the value of CBA Roger?” “What do you think of CSL and Cochlear at these prices?” “They’re pricing QBE like it is going out of business, that’s just crazy.”

    Today, value is not so obvious and once again that is reflected in the general quality of the companies that you are asking me to value for you. While you have requested a few decent businesses, there have been a few raised eyebrows at Montgomery Global.

    With those thoughts in mind, I offer another Value.able update from Montgomery Inc, along with the relevant MQRs – “Montgomery Quality Ratings”. At some point I will publish, somehow, the entire universe with the A1, A2, A3, to C3 C4 and C5 MQRs.

    Don’t forget that the valuations you are seeing here are based on inputs that include analyst estimates. As some of you have indicated, analysts are notoriously bullish and particularly at the beginning of a reporting period tend to have estimates for earnings that need subsequent downward revision. I will discuss this and my observations and insights in a future post.

    For now, know that the studies conducted by McKinsey, for example, into the persistent excess bullishness among analysts, aggregate and average the data which can produce a result that does not reflect any particular year. Stick your head in an oven and your feet in the freezer and your ‘average’ temperature will be about right, but of course you won’t be feeling so good!

    The point I should make however is that my valuations for CBA, WBC, NAB, ANZ, QTM, CAB, HZL, FLT, SOL, MMS, CPU, AXA, BLD, CFU, DYE, DMX, ISF, VLA, QHL and CLQ (especially the 2011 estimates) will be revised over time. They will change. And having just been calculated they may also have changed from any previously published valuation and supersede them.

    WARNING: Not recommendations or advice. Didactic exercise only. Seek personal professional advice before doing anything!

    * Quality Score shown for last full year results. May change dramatically. May have been one good year – a flash in the pan. There is more to know. If for example, a company makes a debt-funded acquisition, its quality score could change.

    ++ 2009 Valuation. No forecast information available
    +++ No forecast information available
    ^ US Company listed in the US

    Your copy of Value.able will be delivered soon. I’m looking forward to comparing you’re valuations here on my blog.

    Posted by Roger Montgomery, 22 July 2010.

    by Roger Montgomery Posted in Companies, Financial Services, Insightful Insights, Investing Education.
  • What A1 companies are the best value right now?

    Roger Montgomery
    July 17, 2010

    Peter Switzer invited me to join him on the Sky Business Channel last Thursday evening. We discussed the market and my way of thinking about businesses. Then he asked me to reveal which A1 companies are the best value right now. Here is the interview.

    If you received my email update yesterday about Value.able‘s delivery date, this is the video I referred to as ‘Montgomery’s best value stocks‘.



    Switzer TV with Peter Switzer was broadcast on 15 July 2010 on the Sky Business Channel. Visit www.rogermontgomery.com to secure your first edition hard back of my step-by-step guide to valuing the best companies and buying them for less than they are worth.


    The video is provided by Switzer.com an online portal for retail investors and small business owners. Switzer also provides Financial Planning and Business Coaching services.


    Posted by Roger Montgomery, 17 June 2010

    by Roger Montgomery Posted in Companies, Investing Education.
  • Where is Value.able?

    Roger Montgomery
    July 16, 2010

    Did you receive my email update earlier this month about the complexity of the gold coin on Value.able’s dust jacket?

    Take a look to the left. See the One Dollar coin on the cover? I never imagined a little gold coin could cause so many headaches.

    Some of you have told me to ‘forget the gold – its what is inside that counts’. I agree with you. However I went to a lot of trouble to get permission from the Royal Australian Mint to use the coin, so I don’t want to give it away.

    I have also agreed to a production process with the printer that, at this late stage, I cannot change.

    Whilst we are adept at digging gold out of the ground, refining it, looking at it and sticking it back underground again, replicating Australia’s One Dollar coin on the cover of my book has proved to be a far more difficult challenge.

    Here is what my printer emailed to me last week…

    “The foil on the green case won’t have the black printing over the foil. The coins have been made black and the image will be suitable for foiling. This method is the quickest way of producing the books. [however] Given the complex nature of the gold coin on the jackets and case cover with several runs through the press, we have to allow drying time to achieve the desired result.

    If you have a hard back book in your collection take a look and you will see what I am alluding to.”

    So I did. I looked at every hard back in my collection and wasn’t able to find one with a picture printed on it. When I briefed the designers I asked for something unconventional. I didn’t realise what they created for me had never been done before!

    Your book will arrive in the week commencing 2 August.

    Thank you for your patience and understanding. I am confident Value.able will become a valuable addition to your investment education and am looking forward to hearing what you think of it after you have read it.

    Posted by Roger Montgomery, 13 July 2010.

    by Roger Montgomery Posted in Companies, Insightful Insights, Investing Education.
  • WHITEPAPER

    ARE WE THERE YET? WHAT TO DO WHEN THE BOTTOM OF THE MARKET IS UNKNOWN

    Roger Montgomery’s latest whitepaper is now available. It explores the challenges of investing when no one knows whether equity markets have reached the bottom of the latest volatility cycle. The paper offers a framework to help you navigate today’s market and invest in quality, profitable companies with growth potential.

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  • Is Apple an A1?

    Roger Montgomery
    July 13, 2010

    Did you buy an iPhone between October 2007 and December 2009? Over 41 million people did. Maybe you and 1.7 million others queued outside an Apple store because you had to have the new iPhone 4 in its first week of release, or you are one of the 45,000 people per day buying an iPad? The numbers are astounding.

    If you are like Forrest Gump of River Road, Greenbow Alabama, who owns Apple shares, and even if you are not, you may be interested in my estimate of the company’s intrinsic value.

    For those faithful to the PC, your loyalty may soon be tested. Apple’s strategy of dominating the home entertainment market is converting the world to its products, and is eating into the business world too.

    While the number of sales are amazing are they enough for Apple to replace Microsoft? In the fast changing world of technology, why not?  But in the slow-moving world of value investing, who knows?  And thats the difficulty – working out if Apple will dominate in ten years time and betting that there aren’t two young guys in a garage somewhere cooking up the next apple, dell, windows or microsoft office.

    Apple’s resurrection started with the return of its founder and prodigal son, Steve Jobs. Whilst off in the ‘wilderness’, Jobs kept himself busy acquiring a little animation studio called Pixar for $10 million, building it up and selling it to Disney for more than $7 billion. He also developed and subsequently sold to Apple his NeXt operating system – for $427 million.

    Apple has a market capitalisation of $228 billion. It’s the second largest company in the US – currently bigger than its nemisis Microsoft and about $60 billion behind Exxon Mobil.

    Yet as we know from Australia, market cap means little. It is Return on Equity, margins and revenue that reveal the quality and performance of a business. And in these areas Apple and Microsoft are similar.

    It is however Apple’s revenue-per-employee number that truly causes the jaw to drop.  Microsoft’s revenue divided by its employees equals US$630,000. Apple’s is an astounding US$1.5 million.

    Despite the company’s success, things haven’t always been rosy at Apple. In the 1980’s Apple lost the personal computer war to the PC and Windows became the standard.  This was in part due to the fact that the Windows platform had attracted the ‘killer app’ – Office. But dud Windows revisions and costly software upgrades left unhappy consumers to explore alternatives.

    Re-enter Steve Jobs, as interim CEO of the company he co-founded twenty years earlier. Apple’s staff called him the ‘iCEO’… seriously. It was July 1997 and Apple had lost $1.8 billion in the previous 18 months.

    Jobs set about replacing Apple’s board, dropped a case against Microsoft in return for Microsoft developing Office for the Mac, edified the grandeur around the brand, killed off the white labeled versions of its products that were cannibalising the company and most importantly simplified the product pipeline, killing every product except four top-end machines. This last move got the [remaining] staff more focused and inventory fell from $400 million to $100 million in one year.

    The category killing machine for Apple in the late 1990’s was the iMac –  in fruity colours.  Remember those? And Jobs was serious about simplification. These iMacs did not even have a floppy drive. The user downloaded software from the internet and they were the first computer with a USB port. iMacs were thought of as being ahead of their time.

    And being ahead of their time meant Apple could charge premium prices and generate better margins. The additional cash funded research that ultimately launched the iPod. Coinciding as it did with the emergence of the “digital life”, the iPod re-launched Apple.

     

    Fast forward to 2010 – what is the intrinsic value of Apple? And is that value rising? Can Apple live up to the iPad’s promise that ‘…this is just the beginning’.

    Apple’s Return on Equity from 2001 to 2005 looks like this: 22%, 24.4%, 27.2%. 29.6%. 28.4%. 29.3% and 27.1% forecast for 2011. I have access to a range of forecasts. While some analysts have projected iPad sales will continue for a year at the current rate of growth, others suggest that once the Mac aficionados have purchased, sales will slow significantly. Revenue estimates for 2011 range from $18 billion to more than $45 billion.  The 2011 estimated decline in ROE needs to be seen in that context.

    As you may know I rate companies on a quality scale from A1 to C5, using metrics designed for bank credit departments. Apple is an A1, and that A1 has been consistent for several years. Microsoft, by comparison, is an A2, but its performance has recently been declining.

    Why is Apple an A1? It has no debt and even though equity has grown (from retained earnings not capital raisings) from $3.5 billion to over $10 billion, returns have been maintained. This is exceptional.

    Buffett says that he likes big equity and big returns on equity and on that score Apple makes the grade.  But Buffett avoids fast-changing sectors like technology because he cannot say with confidence where the company will be in terms of competitive positioning in, for example, a decade’s time.  And who knows that there isn’t a couple of university dropouts in a garage somewhere building the next apple, dell, office suite or google!

    So with the share price at US$258, does a discount to intrinsic value exist? Moreover, is intrinsic value rising?

    On the first score the answer is yes slightly. Apple’s intrinsic value is US$262.56.  On the second score intrinsic value is rising to a 2011 estimate of $305.03 – a 16 per cent increase.

    For the last five years, intrinsic value has indeed increased substantially. Below is a little table to show you Apple’s share price and intrinsic values since 2005.

    *Estimate. Not a recommendation. Seek and take personal professional advice.

    Only a very small margin of safety exists today and while you may be optimistic about the fact that Apple’s intrinsic value is rising at a satisfactory rate, you do need to remember that the business is in a fast-changing industry. Future performance and intrinsic value will depend on whether Apple continues to strengthen its competitive advantages.  Thank you to the many investors who emailed me and asked for a quick look at Apple.

    Posted by Roger Montgomery, 12 July 2010

    by Roger Montgomery Posted in Companies, Technology & Telecommunications.
  • Is Oroton an amazing A1 business?

    Roger Montgomery
    July 12, 2010

    Peter Switzer invites me every Thursday fortnight to join him on the Sky Business Channel. 4 June was like any other show. Except once Peter and I had finished discussing investing and stocks and the market, he invited me to stay on for his interview with OrotonGroup CEO Sally Macdonald.

    For readers of my blog, you will know that Oroton is one of my A1 businesses. And I have often said that Sally Macdonald is a first-class manager.

    Below are the highlights from that interview.

    Each time a new video is uploaded to my YouTube channel I post a note at my Facebook page. On Facebook will also find my upcoming talks, editorial features, TV interviews, radio spots and the latest news about Value.able.

    If you are yet to pick up the latest issue of Money magazine find it at the newsstand now, there are a bunch of terrific columns. Click here to read my monthly column. This month I write about ‘Great Retail Stocks’.

    by Roger Montgomery Posted in Companies, Consumer discretionary, Insightful Insights, Investing Education.
  • What do I think these A1 companies are really worth?

    Roger Montgomery
    July 6, 2010

    If you recently ordered my book Value.able, thank you and welcome! You have joined a small band of people for whom the inexplicable gyrations of the market will soon be navigated with confidence and far more understanding. If you have ever had an itch or the thought; “there must be a better way”, Value.able is your calamine lotion.

    Its hard to imagine that my declaration to Greg Hoy on the 7.30 Report that Myer was expensive as it listed at $4.10, or elsewhere that JB Hi-Fi was cheap and Telstra expensive has anything to do with the 17th century probability work of Pascal & Fermet.

    The geneology of both modern finance and separately, the rejection of it, runs that far back. From Fermet to Fourier’s equations for heat distribution, to Bachelier’s adoption of that equation to the probability of bond prices, to Fama, Markowitz and Sharpe and separately, Graham, Walter, Miller & Modigliani, Munger and Buffett – the geneology of value investing is fascinating but largely invisible to investors today.

    It seems the intrinsic values of individual stocks are also invisible to many investors. And yet they are so important.

    My 24 June Post ‘Which 15 companies receive my A1 status?’ spurred several investors to ask what the intrinsic values for those 15 companies were. You also asked if I could put them up here on my blog so you can compare them to the valuations you come up with after reading Value.able. Apologies for the delay, but with the market down 15 per cent since its recent high, I thought now is an opportune time to share with you a bunch of estimated valuations.

    I have selected a handful from the 15 ‘A1’ companies named in my 20 June post and listed them in the table below. The list includes CSL Limited (CSL), Worley Parsons (WOR), Cochler (COH), Energy Resources (ERA), JB Hi-Fi (JBH), REA Group (REA) and Carsales.com.au (CRZ).

    If you are surprised by any of them I am interested to know, so be sure to Leave a Comment. And when you receive your copy of my book (I spoke with the printer yesterday who informed me the book is on schedule and will be delivered to you very soon), you can use it to do the calculations yourself. I am looking forward to seeing your results.

    The caveats are of course 1) that the list is for educational purposes only and does not represent a recommendation (seek and take personal professional advice before conducting any transactions); 2) the valuations could change adversely in the coming days or weeks (and I am not under any obligation to update them); 3) these valuations are based on analysts consensus estimates of future earnings, which of course may be optimistic (or pessimistic, and will also change).  They may also be different to my own estimates of earnings for these companies; 4) the share prices could double, halve or fall 90 per cent and I simply have no way of being able to predict that nor the news a company could announce that may cause it and 5) some country could default causing the stock market to fall substantially and I have no way of being able to predict that either.

    With those warnings in mind and the insistence that you must seek advice regarding the appropriateness of any investment, here’s the list of estimated valuations for a selection of companies from the 15 A1 companies I listed back on 20 June.

    Posted by Roger Montgomery, 6 July 2010

    by Roger Montgomery Posted in Companies, Investing Education.
  • Did you notice a change to my blog? Buy Now

    Roger Montgomery
    June 30, 2010

    Value.able can now be pre-purchased online at my website, www.rogermontgomery.com. My book is on the printing press and will be delivered in about 21 days.

    There will only be one print run.

    In Value.able I share my stock investing rules for long-term value investing and online trading that you can follow to reproduce my excellent stock market returns (have a look at the June issue of Money magazine).

    Click here to pre-purchase your copy today.

    Posted by Roger Montgomery, 30 June 2010.

    by Roger Montgomery Posted in Companies, Insightful Insights, Investing Education.
  • Which 15 companies receive my A1 status?

    Roger Montgomery
    June 24, 2010

    As you would all know by now, I like to invest in great quality companies when they are cheap. Nothing too special about that because that is true of a line of value investors from Buffett and Munger, all the way down to us. For me, ‘quality’ is not difficult to ascribe to a company, provided you remove the subjective elements. You can decide, for example, to simply look at the return on equity, but of course that alone will not be enough to separate two companies that each share the same return on equity. One company could have more debt, or two retailers with the same return on equity could have very different inventory turns or different cash flows from working capital. One retailer’s inventory management may be improving and the other declining. The absolute value of many ratios and their trends can all help to determine quality in an absolute and relative sense. That is how I arrive at my A1 ratings (not to mention A2, A3….C5 etc) – ratings that you have seen me discuss on the Sky Business Channel and heard me chat about on 2GB.

    Perhaps the simplest way to think about quality is the way that Buffett has done it using his subscription (complimentary for life one presumes) to Value Line, which was launched in 1931 in the United States.

    Applying Buffett’s approach to an Australian company is delightfully simple. Start by having a look at the profit some time ago – lets use ten years. Compare that ten year-old profit to the most recent one, or even next year’s expected profit. Is it up or down? In his 1996 Chairman’s letter to shareholders Buffett said; “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”

    So the first step is to compare the change in earnings over a reasonable period of time. Ideally you would like the profits to be “marching upwards” and be confident that the future holds the same pattern.

    The next step is to look at the change in the contributed equity. The reason you want to do this is explained with a simple example. Lets say I start a business with $10 million and in the first year I earn $2 million. The next year I earn $4 million and the year after I earn $6 million, and so on. I suspect you would be as thrilled as me with the decision to start this business. What if we started another business that produced the same profits over time as the first example, but in addition to the initial $10 million to get things started, we were required to inject many millions more in equity back into the business, annually? My guess is that you would be far less excited.

    Airlines are particularly adroit at performing these riches-to-rags economics. But having harped on about that for a decade, you already know my thoughts on airlines.

    How about we take a look instead at Incitec Pivot (IPL)? Here is a business that in 2002, after two years of losses, reported a profit of $18.3 million. Equity contributed by shareholders amounted to $65 million at that time and retained earnings (profits that shareholders had not received as dividends) had built up to $84.4 million. Now fast forward to 2010 and Incitec Pivot is forecast to earn about $400 million. So in just 8 years profits have grown more than 20-fold!

    As an owner of the whole business, you would be pretty happy with this result, particularly in light of Buffett’s comments about “marching upwards” and all. The real questions however are 1) have you had to contribute any additional money to the business or leave any in there? and 2) How much?

    While profits have grown by $382 million, the amount of money the shareholder/owners have had to contribute to produce this result is even more startling. Imagine owning a business that grew profits from $18 million to $400, but required an initial investment of $65 million and then an additional $3.2 billion! And we haven’t yet mentioned that borrowings have increased from $120 million in 2002 to $1.6 billion at the end of 2009.

    These sorts of economics do not receive my A1 accolade. The only A they get is the one for ‘Agony’. By comparing the increase in profits to the increase in equity, you can get an understanding of the returns the additional capital has generated. In the case of Incitec Pivot that number is about 11%. If the debt is included, the return on additional capital is 8%. Not as shockingly low as other companies (I can think of half a dozen off the top of my head), but not anywhere near the 30% rates achieved by Woolworths, for example.

    At the 1998 Berkshire Annual Meeting, Buffett said: Time is the enemy of the poor business and the friend of the great business. If you have a business that’s earning 20%-25% on equity, time is your friend. But time is your enemy if your money is in a low return business.”

    He was perhaps referring to Graham’s own metaphor about the market being a weighing machine over long periods. Over long periods of time, prices tend to track the underlying performance of the business. If returns in the business are low, so will be the returns be from owning the shares.

    And thats why I like to stick to A1s. And there’s not that many. So who are the A1’s?  Well, here is fifteen. They’re ranked in order of market capitalisation (biggest to smallest). And don’t forget, this is a purely didactic exercise. Its educational, so you must seek and take personal professional advice before doing anything. Also remember I am offering no assessment about whether the shares will go up or down. The shares could all halve (or worse). I have no way of predicting what the shares will do.


    One of the most frustrating things about having high standards is that the pond gets very small. There just aren’t as many “fish in the sea” as your parents may have led you to believe. But as John Maynard Keynes said in a letter to F. C. Scott on August 15, 1934: “As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence… One’s knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.” My quality ratings can and do change. Not often, but they will. Recently, for example, quite a number of companies raised capital to pay down their debt. Even before they report their full year results, I can see that the raisings will dilute return on equity and dilute intrinsic value, but I can also see that the balance sheet will be stronger and so, the quality rankings will rise. Importantly however for me, my A1’s are those companies in which ‘I personally feel myself entitled to put full confidence’ (in terms of quality, not share price direction or prediction!).

    If you have a list of companies in which you have full confidence and are happy to share, feel free to leave a comment.

    Posted Roger Montgomery, 20 June 2010

    by Roger Montgomery Posted in Companies, Investing Education.