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What Makes a Good Company…

Learn about the different stages of a company's life cycle and how to identify quality companies. Find out where to search for potential investment opportunities.

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What Makes a Good Company…

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  1. What Makes a Good Company… …and knowing where to find them

  2. Part One: The Life Cycle of a Company

  3. Stages of a Company: Companies move through several stages: • Start-up (just an idea) • Speculative (no earnings yet) • Explosive Grower (small cap & mid cap) • Moderate Grower (large cap) • Mature (income stock)

  4. Graph from Take Stock by Ellis Traub, Investware, Inc.

  5. Start-up Stage This is a person, or group of people, with a great idea and some financial backing. Once they get their company off the ground, they will go public with an Initial Public Offering (IPO).

  6. Speculative Stage This company is off the ground, making money, but not profitable. It succeeds on the following…

  7. Speculative Stage…Cont. • Stories & Hunches vs. Educated Selection • Poor Track Record vs. Good Track Record • Technical Analysis vs. Fundamental Analysis • Odds Against You vs. Odds in Your Favor In other words…small, exciting companies with unproven management and no earnings.

  8. Explosive Growth Stage • Typically small cap companies • Minimum of 5 years as a public company • Minimum of $100 million in annual sales • Sales & earnings growing at 15%+ per year These companies are on their way!

  9. Moderate Growth Stage • Typically mid cap or large cap companies • $600 million in Sales and up • Sales and earnings stable but showing declining annual growth rates—typically 10% to 12% The “good” moderate growers are usually the Blue Chips—good quality but conservative.

  10. Mature Stage • Almost always Large cap w/sales of $6 billion+ • No longer innovative. They use their earnings (profits) to pay high dividends instead of growing their business (Income Stocks). These companies will either plug along at a very slow growth rate, they will be acquired by another more aggressive company, or they will go out of business.

  11. We Want… Explosive Growth Companies! & Moderate Growth Companies!

  12. Part Two: What Makes a Quality Company??

  13. What Makes a Quality Company? • Does it have an excellent business model? • Are its products or services unique? • Is there a demand for its products and services? • Does its industry have a future? • Do its products and services have room to expand? These are “qualitative” or subjective questions, meaning they don’t deal with numbers.

  14. Part Three: Where do we find quality companies?

  15. Finding Quality Companies: • Look around your house! Buy what you know! • Read the local & national newspapers • Read financial magazines • Read daily news on the internet • Peruse the Value Line Book at the library… • …or the S&P Reports or the Outlook • Use NAIC’s and other related websites • Look to see what other clubs are buying

  16. NAIC-type stock ideas • BI Magazine – Stock to Study • BI Magazine – Undervalued Stock to Study • BI Website – Community Tab – weekly articles • I-Club-List – NAIC’s discussion board • NAIC Forum on CompuServe

  17. NAIC-type stock ideas • NAIC Most Active www.better-investing.org/subjects/community/ • NAIC Top 100 – (Every April – see Archives) • BITS Newsletter – Monthly Stock Screen • Roster of Quality www.investware.com • IClub Central (Prospector) www.iclub.com

  18. Let’s look at NAIC’s website

  19. What’s Next?? • Do an SSG on the company • Sections 1 & 2 show us if this is a quality company 1) Quality present? add it to the watch list 2) Quality missing? add a write-up to a “reviewed stocks” document so you’ll know why it was rejected the next time you come across the company.

  20. The End

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