Whether you are new to investing or an old-hand, chances are you have given thought and consideration to the qualitative factors you would like your portfolio holdings to have.
A recent article by Hugh Dive which was published on the Cuffelinks website outlined five factors which in Dive's view make a company attractive. Here are the five criteria plus five stocks which in my view meet the criteria.
- Easy to understand – companies with domestically focussed operations and a focus on just one business often make for simpler businesses to analyse. One stock which meets this is furniture retailer Nick Scali Limited (ASX: NCK).
- Low capital requirements – Software and some technology companies enjoy very high operating margins thanks to low ongoing capital expenditure requirements. Having built its platform for car classifieds advertising, Carsales.Com Ltd (ASX: CRZ) now has low ongoing expenses to maintain operations.
- Strong barriers to entry – Pharmaceutical specialist CSL Limited (ASX: CSL) holds large chunks of intellectual property and produces therapies which are difficult to copy or compete with.
- Non-reliance on government legislation or a single customer – Woolworths Limited (ASX: WOW) is an example of a company that can continue to operate effectively without worrying about single customer risk or regulatory risk.
- Quality management – companies run by founders with significant "skin in the game" are a good hunting ground for management which will make decisions in the best interest of the company. Plumbing parts supplier Reece Australia Limited (ASX: REH) has been run by the Wilson family for many years and provided solid returns to shareholders.
Identifying a stock which possesses all five of these traits is of course much more difficult but that is why it is said that investing is simple but not easy!
