Long/Short Equity, Value, Growth At A Reasonable Price
Contributor Since 2013
Finbox is an online stock research platform designed for individual investors and asset managers who care about understanding a stock’s fundamental value. The platform provides a quick sanity check so that investors can understand what they’re investing in and why.
There are several Warren Buffett stock screeners available across the internet as well as theories on how he goes about selecting stocks. He's watched by millions of investors from around the world looking for clues and insights into his strategy. However, one theme that everyone seems to agree with is that Warren Buffett looks to buy quality businesses at reasonable prices. So what does that mean and how do you screen for it?
There are a various sources describing how Buffett finds quality businesses (i.e. AAII, ValueWalk) and they all typically follow the recommendations from the book Buffettology. But how do you figure out if a stock is trading at a reasonable price? This is what's lacking in most Warren Buffett stock screeners. Their approach to determining a "reasonable price" (specifically: stock valuation) is inadequate. Did Warren Buffett really accumulate a net worth of over $60 billion by valuing stocks based solely on historical earnings growth, earnings yield and average return on equity? Unlikely.
Fundamental analyses such as a DCF or a DDM are the most widely accepted valuation methodologies because of their forward looking nature. These analyses produce arguably the closest thing to an intrinsic stock value that ultimately helps you understand your margin of safety. Many investors already know this but don't typically use these valuation approaches - who has the time and resources to build valuation models for thousands of companies?
Mr. Analyst at finbox.io does this for you by building over 100,000 financial models for over 5,000 companies every 12 hours! You can screen finbox fair value estimates that are calculated from pre-built valuation models. Now you can actually find stocks that Warren Buffett would consider "reasonably priced."Warren Buffett Stock Screen
Criteria #1: 7yr Net Income CAGR > 7%
Buffett invests only in a business whose future earnings are fairly predictable
Criteria #2: 3yr Net Income CAGR > 8%
Buffett invests only in a business whose earnings also show indications of an upward trend.
Criteria #3: ROE > 11%
Buffett believes that an above average return on equity may be an indicator that the company has a durable competitive advantage.
Criteria #4: ROIC > 8%
Buffett does not like debt and does not like to invest in companies that have too much debt. He acknowledges the use of debt can effectively increase a company's ROE (see our DuPont model) which is why this criteria is added.
Criteria #5: Capex Margin < 7.5%
Buffett likes companies that do not have major capital expenditures. He looks for companies that do not need to spend a high percentage of revenues on major PP&E upgrades to stay competitive.
Criteria #6: Net Income Margin > 7.5%
Buffett believes a high margin may be a helpful indicator for excluding commodity-based companies.
Criteria #7: finbox fair value upside estimate > 10%
Use pre-built valuation models to figure out if a stock is reasonably priced. A screen only available for finbox.io members!
33 stocks currently fit the above criteria as of June 21, 2016. Results can be viewed in this google sheet. Finbox.io will be providing a link to this Warren Buffett screen shortly, however, you can replicate it yourself now by inputing the above criteria in the finbox screener.
Watch the video below to see how it's done!