While screening potential stock picks for Quality Value Investing’s (QVI) next idea, I decided to introduce this series of posts on highlighting the current wealth of enduring companies that meet QVI’s checklist for high-quality business models.
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Using its current wealth screening parameters, QVI has identified 70 enduring enterprises with strong business models.
This result is similar to the last quarterly update. However, some companies dropped off from the previous update, while some new ones made the cut.
The selected companies fall within QVI’s scope of expertise, which covers Consumer Discretionary, Consumer Staples, Industrials, and Information Technology. These are the four sectors that have produced the most alpha from QVI’s multiple picks since inception in 2008.
Companies are no longer screened from the Communications Services, Energy, Financials, Real Estate, Materials, and Utilities sectors, as these sectors fall outside QVI’s circle of competence developed over its 18-year existence.
However, if an active QVI Stock Pick from an uncovered sector appears on the screen, it will be included in the High-Quality Universe.
The quality-focused screen does not include valuation parameters. For future QVI Stock Picks primary-ticker posts, I will examine present-value metrics to identify temporarily discounted stock prices for select quality companies from the list below.
Only those meeting QVI’s current wealth and present value criteria are eligible for initial coverage in the QVI Stock Picks Real-Time Performance Tracker.
High-Quality Current Wealth Screener
There were 5,568 publicly traded companies from the four sectors at the beginning of the screening.
Company Profile
Sectors: Consumer Discretionary, Consumer Staples, Industrials, and Information Technology, plus the active QVI picks from Communications Services, Financials, Health Care, and Materials.
Exchanges: Nasdaq Stock Market (NASDAQ) and New York Stock Exchange (NYSE). No over-the-counter (OTC) issues.
Market capitalization: Large- Cap, Mid-Cap, or Small-Cap (excluding microcaps).
Net results shown after the company profile screen: 843 companies.
Value Proposition
Morningstar Economic Moat: Wide or Narrow.
Value Proposition Elevator Pitch: Are the company’s products or services relatively straightforward and easy to understand?
Net results shown after the value proposition screen: 318 companies.
Returns on Management
Net Profit Margin (MRFY): Must be positive.
Return on Equity (TTM): 15% or higher.
Return on Invested Capital (TTM): 12% or higher.
Return on Assets (MRFY): Must be positive.
Cash Flow Per Share (TTM): Must be positive.
Net results shown after the return-on-management screen: 111 companies.
Enterprise Downside Risks
Debt to Equity (MRQ): below 100%. Note: QVI also assesses long-term debt coverage relative to current assets in its primary research reports on tickers.
Current Ratio (MRQ): Usually above 1.00, except for the consumer staples, financials, and healthcare sectors, due to unique accounting factors that can lower current ratios even for high-quality companies.
Owners’ Earnings (5-year EPS growth plus 5-year dividend rate growth): 15% or higher (screened last as it is manually calculated). Note: QVI also looks at 5-year free cash flow growth in its primary ticker research reports.
Net results shown after the enterprise downside risk screen: 70 companies.
Basket of 70 High-Quality Business Models
Here are the 70 businesses remaining after applying the current wealth-screening criteria to a publicly traded universe of 5,568 companies, including only covered sectors, plus the active QVI Stocks Picks in sectors no longer covered for new ideas.
