List of Very Good Companies With Strong Fundamentals (2015)

I am sharing this list of companies that I believe to possess very strong fundamentals, worthy of value investor's attention. After analyzing 77 SGX listed companies using my new Analyzer Template, these 9 companies have scored full marks on my 4 criteria filter. It is my intention to continuously update this list as I analyse more companies.

Rather than starting from the first "A" company on SGX, I used Google's Stock screener to filter out a list of companies with the basic fundamentals to analyse. Google's stock screener can be accessed via this link: https://www.google.com/finance/stockscreener; or you can simply search for "google stock screener". The screener occasionally fails to load when I make changes to the options, but reloading the page a few times usually solves the problem. If you like to know how I use this screener, you can follow this blog for my post on using Google Stock Screener.

My 4 criteria filter are:

1. 5 year average growth rate must be more than 5%
2. Latest Total Liability to Equity Ratio must be less than 0.5
3. Must achieve positive Free Cash Flow (FCF) for the past 5 financial years
4. Average Return on Equity must be more than 15%

Identifying great companies that have very strong fundamentals and are generating a lot of profits may be important, but as a value investor, price is what you pay and value is what you get. If you pay too much for a great company, the returns might not be profitable at all. Therefore, paying the right price is also very important.

There is a theory called the Efficient Market Theory which states that the market will always reflect the fair value of every company based on all the information that is available in the market. However, I do not subscribe to this theory. Instead, I believe that the market is as Benjamin Graham describes, a temperamental fellow who will offer a different price for all companies each day depending on his mood. The market's mood can be depressingly pessimistic or it can be wildly optimistic, sometimes selling a company at very very low prices because of some temporary problems, sometimes offering to buy a company at very very high prices because of over-hyping of good news.

Therefore, the role of a value investor is to wait patiently for the market to be pessimistic, before taking the courage to buy great companies. This usually happens when there is a market crash. A value investor needs to have the courage to enter the market when everybody is rushing out.

Most of these companies are calculated to be overvalued at current market valuation based on my expected return of 18.45% per annum, which translates to 15% inflation adjusted return p.a for a holding period of 5 years. If you have a lower expected return and are willing to hold the stocks for longer periods, these companies may be the right companies to buy.

Only T T J Holdings was determined to be undervalued. You can read my analysis of this company here: http://fundamentally-invest.blogspot.com/2015/01/t-t-j-holdings-limited-fundamental.html

Below are the graphs of each company's FCF and growth trend for the past 5 FYs. Do follow my blog if you would like to receive updates of analysis for these great companies.

Design Studio Furniture Manufacturer Limited

Japan Foods Holding Limited

OKP Holdings Limited

Raffles Medical Group Limited

Sarine TechnologiesLimited

Silverlake Axis Limited

Straco Corporation Limited

TTJ HOLDINGS LIMITED

Vicom Limited

Thank you for reading, I hoped that you have enjoyed reading as much as I have enjoyed sharing. If you like my article, please share it so that more people can enjoy it too.



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