Buy the best stocks in the world: companies that can compound earnings
In today's market more than ever, quality matters. With uncertainty in the air and the economy under perhaps unprecedented stress, you need a game plan to preserve your capital and take advantage of what could be some very attractive opportunities.
Cash Flow Compounders is built around exactly this sort of game plan. Specifics? We're looking for:
The best companies in the world, in other words, but at good prices. This is the alpha we are seeking here.
I have spent the past 25 years developing my style of investing, and the winners time and again are the ones that can compound earnings steadily and consistently, year in and year out.
Indeed, since becoming a contributor on Seeking Alpha in 2011, my stock ideas have generated 27% annual returns for those following my advice (as of Sept 2022). That puts me well in the top 1% of financial bloggers (TipRanks number 120 out of 14,210).
Cash Flow Compounders will select only the best companies, ones that didn’t lose a dime during the Great Recession, and ones trading at attractive valuations. In essence, I have put together what I deem to be a bulletproof portfolio, one that not only will out-deliver on an EPS growth basis vs the market, but also will outperform in recessions.
While I didn't see coronavirus coming (who did?), I had a feeling in 2019 that the markets were getting toppy. A 10-year bull market can be a lot of fun, but it makes people forget valuation, risk management, or downside.
So, to prepare for a time like this, I screened through virtually every stock in the S&P 500, the Nasdaq, as well as the Russell 3000 for names that fit into our criterion. Out of this list, only approximately 100 passed the test when I first ran it, to give you an idea of how selective it is. These names are best-in-class stocks, ones you can buy and own for years, offering superior after-tax returns.
High management fee companies, secular decliners, capital-intensive cyclicals, and over-levered balance sheet stocks simply don’t pass the muster. By the way, our 10 years of backtesting of this portfolio suggests 20.8% annual returns compared to the S&P 500 at 14.6%.
The key is getting the entry point right on these names. That’s why I have created this service. Stocks need to be roughly 1.5 standard deviations cheap to historical trading averages before recommending. Said simply, stocks need to be somewhat beaten up or depressed from their norms. Of those 100 stocks, only a handful currently meet the entry point guidelines. Talk about rigorous!
It's not enough to look backward at trailing earnings; we know those are going to go out of whack in the coming months. You need to understand what the new market environment means for stocks.
I've been here before. Bear markets are hard for everyone, but there are steps you can take. We start with the best companies in the world, and we stress-test their valuations.
I get on the phone with management teams to understand how they're holding up during these difficult times and what that means for the months ahead.
And I share updates in our chat room in real time, as well as regular posts on how to adjust our tactics and strategy as the market runs through the full cycle of a bear market.
We have a plan to get through the months ahead. If you join Cash Flow Compounders, you can benefit from this plan and avoid going it alone.
Anyone that has followed me on this site knows however that I am no quant. I am value-oriented and a Warren Buffett follower to the core. The work here will be very in-depth and based on my extensive experience as an institutional research analyst and portfolio manager at multiple hedge funds and mutual funds. I have looked at thousands of stocks and bonds in my career and spent several months developing this list of names.
Even though Cash Flow Compounders provides institutional-level analysis, the ideas will be available and actionable for any investor. Colorful fast charts and company slides don’t cut it for me. Here we dig through financials, talk to management teams and competitors, build models and scenarios and outline all the risks that we see. The information provided will be substantial and enable subscribers to decide for themselves whether to invest or not. The good news is, these aren’t stocks that need constant monitoring. Buy a great company at the right price, and the rest is easy.
Finally, I also aim to let subscribers in on Special Situation value names that fit into my quality criterion, but perhaps have a slightly different angle. Sum of the parts stories, where markets appear to ignore valuable assets, or event driven names that appear attractive (e.g. spin-offs or companies for sale) are nice ways to add hidden gems to our core compounder portfolio.
I want readers to know that I intend to invest in every single idea posted, as I have in the past. I am putting my money where my mouth is!
You want to see our plan and how we're handling this market? You can do so for free for two weeks, with no longer commitment. See what we're doing, take our ideas for your investing, learn whatever you can. I've developed this service to help investors for a time like this, and I want it to be easy for you to see what it's like and give it a shot.
If this sounds like the right fit for you, sign up on the right to get started and join me in finding the best companies in the world, good for any market!
I have put a lot of capital in the SA Marketplace over the years. This is the undisputed best value in the land. The service is quality over quantity. As an institutional investor, I can appreciate that. CFC is a great add to our research portfolio.
Frequent and well thought through analysis. I review every post. These articles have been extremely helpful. Highly recommend reading.
I'm not a pro investor but these analyses really help educate and inform for short and long-term investment decisions! Thank you Thomas for your inciteful postings!
best marketplace service on Seeking Alpha
Deep knowledge on the markets combined with thorough and detailed quant analysis. Best decision you can make is to follow Thomas's wisdom.
Excellent and detailed fundamental analysis clearly written and with great common sense. Really strong source of ideas across sectors.
Tom’s “Cash Flow Compounders” is the best kept secret in SA. He provides world class analysis that compares with the likes of ValueLine, S&P Global Reports and Credit Suisse stock reports, while making everything easy to understand. I have tried multiple other SA authors and man this guy’s work blows others out of the water. I recently tried his service for 3 months and upgraded to the annual subscription for the great value that he provides.
Very detailed analyses and actionable suggestions / recommendations. Research uncovers hidden bargains. Focus is on growth at a reasonable price. I have found this service very valuable.
Exactly what I was looking for to help navigate the recent chaos.
Reliable analysis and experienced fundamentals...complete and thoughtful perspectives...fresh ideas...he's been compounding value for me!
Thomas and Cash Flow Compounders is the best service that I have ever subscribed to on Seeking Alpha. Just wish I would have been able to follow him years back.
Appropriate name. Access to Mr. Lott's brain is the MOST undervalued business here. I have been following him for years and it has paid me well. I am so thankful that he is posting more! Credible advice plus the opportunity to learn the way he thinks. What a bargain!
I find Tom Lott's Cash Flow Compounders insightful, full of analytics and observations on both micro and macro conditions. The recommendations incorporates diverse set of investments including stock compounders, special situations and fixed income. I also like the ability to be able to pose questions and interact directly with Tom and get his timely and thoughtful perspectives. There is a lot to like about Tom's Cash Flow Compounders, and I encourage all to spend some time reading and thinking through how his recommendations to help us achieve our respective financial objectives based on our individual risk-reward appetites.
Tom Lott's Cash Flow Compounders is fantastic. Tom writes about ideas that are actionable and that make money. Tom combines detailed deep analysis, realistic price targets and downside scenarios, and great market sense -- to generate great ideas. Other services write articles that have great headlines, but provide very little analysis. Tom's research and analysis in each article gives me the confidence to buy his ideas and I have made real money in his ideas. Tom has been writing for Seeking Alpha for a long time and you can track his success by reading his old work. I highly recommend Cash Flow Compounders.