What's on your checklist when you look for stocks? The billionaire investor Warren Buffett has built his personal $60 billion+ fortune on insisting any prospective company having certain characteristics.
According to the well-known book Buffettology, which describes his investing thought process, he sticks to companies that have:
– high return on equity
– high net profit margins
– high return on capital
– a history of steady, growing earnings
These above average companies need to have consistent returns and profit margins of 12% – 15% upwards not just at one time but over a number of years. He loves predictability in company performance.
Here are two ASX companies that meet most or all of this initial checklist that Buffett, "the Oracle of Omaha", screens stocks with.
Telstra Corporation Ltd (ASX: TLS)
The Australian telecom giant has been a consistent performer, but now is staking its next phase of growth in Asia. Beyond mobile phones and broadband, it wants to become a regional leader in business enterprise and data management services using cloud computing technology.
Also, a number of developing Asian countries have only 2G mobile networks that can't handle massive data transfers, so Telstra can expand its business by using its technological expertise to help build advanced networks within these countries. Near-term growth prospects are promising and with a 5.2% fully franked yield, this quality stock should be a part of your portfolio.
Carsales.com Ltd (ASX: CRZ)
The number one car sales search website company has quickly established itself as a market leader. It has a whopping 54% return on equity and consistently high profit margins. It, too, sees the need to expand into Asia and other developing regions that have large auto markets.
It has substantial investments in leading car sales websites in South Korea and Brazil, as well as iCar Asia Ltd (ASX: ICQ), an Australian-listed company with websites covering a number of South East Asian countries. Establishing itself as the market leader in these growing car markets could mean having a number of recurring income streams for many years. A decent 3.3% yield fully franked tops off this stock. Overall, a quality company that could give your portfolio a growth boost.
