Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific advice and insights, such as how we select our top stocks. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.
Today’s tip: “By using our ratings system, investors can make informed stock selections with a much better chance of success.”
When subscribers to one of our four investment newsletters read about the stocks we recommend, they see a rating displayed with each stock. These are our TSINetwork ratings: Highest Quality, Above Average, Average, Extra Risk, Speculative and Start-up.
We award these ratings on a point system. We base the points on nine key factors that determine a company’s ability to survive a business setback and go on to greater success when conditions improve.
Companies with 11 or 12 points fall into the top category: Highest Quality. Those with eight to 10 points are of Above Average quality. Six or seven points means they are of Average quality; four or five points, Extra Risk; two to three points, Speculative; one or no points, Start-up.
Today, in our first Investor Toolkit of the New Year, let’s examine four of these key factors that help us make our recommendations.
One point for offering products or services that benefit from habitual behaviour: These are companies that sell products that consumers must buy, no matter what the economy is doing. These companies can add stability to your portfolio. Food outlets, such as Tim Hortons (symbol TIH on Toronto), a stock we analyze in our flagship advisory, The Successful Investor, are good examples of these types of firms.
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One point for freedom from business cycles. Demand periodically dries up in “cyclical” businesses, such as resources and manufacturing. That’s why investors need to diversify and invest in utility, finance and consumer stocks along with resource firms and manufacturers.
One point for the ability to profit from secular trends, or two points for the ability to profit from two or more secular trends: Secular trends outlast ordinary business booms and busts, because they reflect ongoing social change. Free trade and rising environmentalism are just two examples of secular trends.
One point for industry prominence—two points for industry dominance: Companies that are prominent, or dominant, in their industries are particularly well positioned to weather economic downturns and other setbacks, and fend off new competitors. Top stocks in this category include firms like Metro Inc. (symbol MRU on Toronto).
The company is Canada’s third-largest supermarket operator, after Loblaw and Sobeys. It has about 600 supermarkets in Quebec and Ontario. It also operates 260 drugstores under the Brunet, The Pharmacy and Drug Basics banners.
Even though it is not the largest company in its industry, Metro is expanding steadily by acquisition. Plus it is using other strategies to grow, such as expanded produce sections in many of its stores, its new loyalty card program in Quebec and the expansion of its private label products. In a sluggish economy, it also benefits from its more than 200 discount-priced supermarkets. This also helps it compete with big U.S. retailers like Wal-Mart and Target as they expand aggressively in Canada and sell more groceries.
Plus Metro has a hidden asset: its 23% share in convenience store operator Alimentation Couche-Tard (Toronto symbol ATD.B). Couche-Tard was our #1 Aggressive Stock Pick for 2012 in our Stock Pickers Digest newsletter, and surged more than 60% for us during the year.
Next Wednesday, January 9, 2013, we’ll take an in-depth look at the other five factors we use in our ratings system and the benefits they offer.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Do you have your own informal ratings system for stocks? What is the first thing you look for when you consider buying a stock? Let us know what you think.
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The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
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