The Bill Cara Global 100 Best Companies Explained

by: Bill Cara

These 100 companies were selected by me, not with regard to technical factors, but on the basis of fundamental, quantitative and economic factors. I judge them to be superior to their peers. Clearly, this is a subjective selection process. Like all people, I do have biases.

As to technical factors, there is a natural flow to price movement in equity markets, which I study. Periodically, the share prices of these companies enter what I call an Accumulation Zone or a Distribution Zone. Depending on one's time horizon, whether it is long-term, intermediate-term or short-term, there will be a time to buy and a time to sell (Ecclesiastes 3).

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Cara 100 Companies explanation:

Quality + Timing is my Holy Grail… Quality of the Company and Timing in regard to the trading of its share prices.

Quality is primarily the record of a corporation’s financial strength, its profitability and growth, and its prospects for continuing a comparable record in the future. Like values and charisma in people, the quality of corporations sets them apart from their peers.

I look for a strong balance sheet and an A- (Above Average), or higher, credit rating in a corporation.

I like to see steadily increasing revenues, cash flow, earnings and (if possible) dividends, with compound annual growth rates [CAGR] of each that exceed that of their peer group. For profitability and stability, I look for relatively high operating margins and consistent 18 pct or higher Return On Equity [ROE].

I look for leadership in management that I characterize as having strong personal values.

While headquarters of the Corporation may be domiciled in any jurisdiction of the world, the common shares must be listed for trading on a major US stock exchange, which requires a certain standard of financial accounting and reporting, and which provides in return a high visibility to the trading public.

Overall, my objective is to spread the list of 100 companies across the globe and all ten industry sectors.

Because there are many corporations that do not list their shares in the US, the country weighting of the Cara 100 is higher for US corporations, about 55 pct versus the 47 pct weighting of the S&P 1200 or the 45 pct (or less) I personally recommend.

Within sector weightings, the Cara 100 is under-weighted in Healthcare (GICS sector 35) and Utilities (GICS sector 55), mostly because it is my experience and belief that management and comparative performance in these sectors is not as solid as elsewhere. Another factor, of course, is that the public has a higher recognition of the names of the other consumer-oriented sector companies, as well as those in energy, financial, industrial, and technology industries.

Bill Cara's Healthcare Picks:

(NYSE:AET) - Aetna Inc

(NYSE:BMY) - Bristol Myers Squibb Co

(Private:DNA) - Genentech Inc

(NYSE:GSK) - GlaxoSmithKline plc (ADRs)

(NYSE:JNJ) - Johnson & Johnson

Bill Cara's Utility Picks:

(NYSE:CCJ) - Cameco Corp

(NYSE:EXC) - Exelon Corp

Finally, I added some names like (NASDAQ:NTES) and Silver Wheaton (SLW) that are relatively smaller, but more specialty companies, than the Exxons (NYSE:XOM) and Citigroups (NYSE:C).

Overall, there is no question that the list is a subjective assessment, based on many biases I have, that we all have. So I make no claim that this list is perfect by any means.

The market is us. We come from different countries, different cultures and so forth, and so we are going to have different perspectives on values, charisma, quality and the like. But at the end of the day, we all trade the same markets, and my Cara Global Best 100 Companies list represents good quality and a good watchlist to follow in the equity market.

There will be times when I think it is appropriate to be selling some of the stocks of these companies and buying the stocks of some others. There will be times when I think it is appropriate to be 100 pct invested in equities and other times when I think a high weighting in cash, precious metals and/or bonds represents the best position relative to risk and opportunity.

So when I recommend selling shares of an Exxon, for example, that is no negative reflection on the Company unless I remove it at that point from the Cara 100 for reasons I would give. Traders must recognize that every company will go through cycles of thick and thin, like we all do. In our case that doesn’t mean we are bad people – if we know we are not. Sometimes, “stuff” just happens, and we have to deal with it.

It was unfortunate that I had to remove Maxim Integrated Products (NASDAQ:MXIM) because the stock had lost its Nasdaq listing and index status for its failure to submit timely financial summaries. Other companies like Fannie Mae (FNM) and Freddie Mac (FRE) have also failed to file but, politics being what it is, retained their exchange listing. In any event, Maxim is presently held in high regard by 17 analysts of major broker-dealer firms. In fact, the consensus is a Buy-rated 2.1 on a scale of 5. Other companies in the Cara 100 should be so fortunate.

One company, Research In Motion (RIMM), I removed from the Cara 100 early in 2007 for reasons that I became disenchanted with the values of what I consider to be arrogant management. Those financially powerful individuals believed themselves above the law in that they, without public knowledge, altered corporate records in order to option common stock to insiders at favorable prices. Then denied it.

If breaking the law is becoming an acceptable practice, then society is doomed. Capital markets cannot take the stress of the loss of the public’s confidence, and I, for one, will not support fraud against the shareholders who are already putting their capital at risk. Deceit against shareholders who have put their trust and faith in a corporation’s management and Board is a pretty sleazy thing in my books.

But on Friday Oct. 5, 2007, in a courtroom, Research In Motion Ltd came clean about their underhanded options grants to insiders, and also acknowledged changing their corporate governance practices so that kind of thing would not happen again, so I put the Company back into the Cara 100.

As a trader and writer, I have no interest in holding grudges. We all live in glass houses, or ought to.

When I say “the market is us”, I could add the words, “and the way we need it to be.” We the people do not ever need to support self-serving miscreants in our society. Otherwise we would have no right to expect social equity.