Discovering Fantastic Stocks: Long-Term Investment Strategies and Models

Investing in the stock market requires a strategic approach, especially when focusing on long-term growth. Fundamental analysis is a critical tool for identifying fantastic stocks that not only offer substantial returns but also contribute positively to society and the economy. This article explores some of the best fundamental analysis strategies and models used for long-term investing.

The Significance of Fantastic Stocks

A fantastic stock is defined as one that has gained public recognition over time but was previously overlooked. These companies are often misunderstood or underestimated by investors due to a lack of historical performance or lack of fame. Despite this, these businesses exhibit consistent returns, maintain their competitive edge, and adhere to ethical standards and corporate social responsibility. As these companies start to outperform, public perception shifts dramatically, and they become wealth maximizers over extended periods, including years and even decades.

How to Identify Fantastic Stocks

To find these exceptional stocks, we can use a structured questionnaire with recommended answers:

Critical Roles in Society or Nation Building

Question 1: Does the company play a vital role in the community, city, or country where it operates?

Answer: Yes. The company contributes significantly to the social and economic fabric of the region.

High Public Recognition

Question 2: Does the company have high public recognition?

Answer: Yes. The company is widely known and respected by the public.

Competitive Advantage

Question 3: Does the company have a competitive advantage?

Answer: Yes. The company is positioned competitively, and a Porter’s 5 Forces analysis can further elaborate on this.

Pricing Power

Question 4: Does the company have pricing power?

Answer: Yes. The company can pass on future cost increases to customers.

Loyal and Consistent Customers

Question 5: Does the company have loyal and consistent customers?

Answer: Yes. Customers are satisfied and frequently return due to the company’s quality and offerings.

Impact on Daily Life

Question 6: Is the company’s product a part of our daily lives?

Answer: Yes. The company’s products or services are a significant part of our daily routines.

Revenue Contribution

Question 7: Do we contribute to the company’s revenue?

Answer: Yes. Either directly or through indirect purchases, we support the company’s business.

Attractive to Consumers and Talent

Questions 8 and 9: Do we dream of owning or trying their products or services? Do we dream of working for that company?

Answer: Yes. The company offers quality products that appeal to consumers, and it is an attractive place to work.

Innovation and Sustainability

Question 10: Does the company plan to disrupt existing systems or products?

Answer: Yes. They are committed to innovation and disruption.

Consumer Loyalty

Question 11: Do we plan to continue using their products or services in the future?

Answer: Yes. We are committed to their products and services for the long term.

Impact on Our Lives

Question 12: Do we see that this company will make a difference in our lives?

Answer: Yes. The company’s products or services improve our quality of life.

Financial Metrics

Questions 13 to 18: What are the financial metrics of the company?

Return on Invested Capital (ROIC): More than 10% per annum. Price-to-Earnings Ratio (P/E): Less than 24. Price-to-Book Ratio (P/B): Less than 2. Asset Turnover Ratio: More than 1. Other Income: No more than 50% of profit before tax. Debt to Equity Ratio: Less than 2.

Additionally, the Enterprise Value should be calculated as Market Capitalization Debt - Non-Current Investments.

Key Financial Ratios and Industry Performance

Firm Profits are calculated as Net Profit Interest - Tax Savings on Interest - Other Income, while Total Income is Sales Other Income. The Firm Margin is determined by dividing Firm Profits by Total Income. The Enterprise Value to Total Income to Firm Margin (EV/TTM-Firm Margin) ratio provides a comprehensive view of the company’s valuation. Historically, companies with a ratio below 15 have outperformed the market and delivered annual returns over 25%.

Conclusion

By using these fundamental analysis strategies and financial measures, investors can identify fantastic stocks that have the potential for long-term success. These companies not only provide significant returns but also make a positive impact on society and the economy. With careful analysis and strategic investment, both individuals and institutions can achieve substantial gains in the long run.

Remember, the journey to discovering fantastic stocks requires patience, perseverance, and a deep understanding of the market. By following these steps and maintaining a long-term perspective, investors can build a portfolio that not only grows but also contributes to positive social change.