Picking winners

Hi Michael,

Thanks for the positive comments always really appreciated. Your question just like stock selection & analysis involves lots of moving parts and we generally combine them like a  jigsaw in an attempt to get a clear picture, things we look for:

• Firstly, we question if we like the sectors growth outlook moving forward, its hard for a company to perform in a contracting market.
• Secondly if it’s a resources stock we will usually consider if its in the “naughty corner” i.e. not keeping up with the respective commodities with oil a perfect example today. We often talk about the elastic band effect. When the market is bullish a typical commodity, the stock will often trade at a premium to it’s asset base, and vice versa on the downside.
• We then look at how the  stocks trading from a valuation perspective compared to its history, peers and of course the market. This has more nuances, for example, companies with a low asset base will have high return on equity but that in itself is not a great measure without context. The key takeaway being, that we look at different companies in different ways and that unfortunately takes time.
• Lastly we consider factors such as the technical picture, insiders buying / selling, volume of shorts etc

When we bring these altogether like a good recipe, sometimes with some simple “Look & feel”, we will make a decision hoping no variables come from left-field but obviously they sometimes do hence investors should always consider spreading their risk.

chart

Woodside (WPL) v Crude Oil ($US/barrel)

LAST UPDATED 26/11/2021 16:34

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chart

Woodside (WPL) v Crude Oil ($US/barrel)

LAST UPDATED 26/11/2021 16:34