Recent Purchase
I’m always looking to purchase a new company. Everyday I run multiple stock screeners that do my heavy lifting. These screeners data mine the indexes looking for certain metrics that I program into them. This gives me a starting point.
This screen I built uses some loose guidelines I borrowed off Benjamin Graham. His criteria is far too strict to pull up a stock in this day and age so I have to adjust here and there to even get a single stock in all North America
This shows me how expensive the market is and also shows me there might be good opportunity to purchase a company.
That company is Western Digital.
WDC/NSDQ
Purchased 120 shares at a price of 47.50 USD for a total of $5700
1. (Forward) P/E under 15.
Pass 11.32. The S&P is at 25.4 right now so this is very reasonably priced.
2. Price to book ratio less than 1.5.
Pass 1.2. The closer the price is to book the better. Why pay more for a company than what they are worth in assets?
3. Market cap over 1 Billion.
Pass 15 Billion. I only want large caps that have enough volume that I can drop them when I want.
4. Current Ratio greater than 1.75
Pass 1.8. This is probably the most important metric I screen. I’ve seen so many companies that have their short term liabilities crush them when they have an unexpected earnings miss. Just look at all the oil companies, when debt comes calling you need to have the money! I would even like to have the current ratio over 2 but i’m less picky than BG.
5. Must pay a dividend.
Pass 4.2%. What can I say, I need that dividend.
6. 5 year historical dividend growth greater than 5%.
Pass 27.68% I also need that dividend to grow.
7. 5 year historical EPS growth greater than 1%
Pass 5.18% EPS growth should result in a higher stock price and a higher dividend.
8. Forward looking Payout Ratio under 75%
Pass 52%. I look at forward EPS/Payout Ratio because it gives me a picture of what I can expect coming up. Like many of the oil companies people researched, they looked and saw a current EPS and thought they could keep up the dividend payment. If they looked at the forward EPS they would have seen that they would not be able to cover the dividend without raiding the piggy bank (using credit) or slashing that dividend (i’m looking at you Conoco)
9. Must have a Moat and be relevant in 10 years
Pass. I would not normally have given this a pass because the world is quickly shifting away from HDD units. The recent SD acquisition makes a lot of sense for me as they are moving to a more SSD focused business model.
Disclosure. I’m long WDC and I am not a Doctor and do not give out financial advice. I only share my personal opinion which seems to be about as good as flipping a coin.
Sources: yahoo.com, morningstar.ca, zacks.com.
