Growing Rich - Arabictrader.com

GROWING RICH WITH GROWTH STOCKS
gets his future earnings forecasts from outside services, like First Call,
which provide a consensus on what the analyst community expects
from the companies going forward.
Elizabeth Bramwell, however, cautions against relying solely on
brokerage house research. She prefers to conduct her own investigations
and talk with companies directly. “You never know what they’re
not telling you,” she says. “As an investor, you ultimately have to do
your own thinking.”
DECIPHERING THE FINANCIALS
Now let’s dig deeper into the specifics you should look for when
examining a company’s financial statements. Don Yacktman’s ideal
company has a return on tangible assets of well above 20 percent
(defined as inventory, real estate, and net receivables), plus a cash
multiple (after depreciation) of 10 or less. “The companies I purchase
each have marvelous economics and, in most cases, are very well
managed,” he maintains. “In addition, most of my companies generate
significant amounts of excess cash and have share repurchase plans
in place. They are therefore in a position to enhance shareholder value
through repurchasing their own stock at attractive prices.”
Yacktman has constructed his database of potential investments
one company at a time. Collecting new ideas is an ongoing process.
“In a lot of cases, I’ll have some broker or client call and tell me about
a stock that looks interesting,” he offers. “Then I’ll examine it to see
if it’s something worth following. I’m very suspicious of broker recommendations,
because they tend to write reports only after a stock has
gone up and is highly priced. In that case, I’ll mentally say, ‘Yes, this
company has a good business, and it’s something I’d like to own at
some point in time, but it’s simply too expensive right now.’ I’ll keep
it in the system and follow it until it becomes attractively priced. I
followed H&R Block for years. When it sold off part of CompuServe
in 1996, H&R Block stock got clobbered to the point where even if
CompuServe was worthless, H&R Block was still attractively priced.
I bought the stock at those levels.”
If the numbers and inherent nature of the business come together,
Yacktman takes a look at the general outlook for the industry in which
the company is involved. He wants to see how it stacks up next to
its competitors and whether its products are likely to remain successful
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