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| Warren Buffets |
According to the secret method or formula, Chong Ser Jing recently ranked all the stocks in the Singapore market by an investing strategy generalized by Joel Greenblatt in his book -"The Little Book That Beats The Market". For 2018 when Ser Jing wanted to find the 30 best stocks in Singapore, with the help of secret method, he found Capital World Ltd (SGX: 1D5) to be one of them. Share Investment
Capital World is a property developer company establishes joint ventures with landowners to minimize its initial capital outlay. It is also known as Terratech Group Limited and also involved with the production and sale of premium-quality marble blocks and slabs, aggregates, and calcium carbonate powder. The executive director and chief executive of Capital World are Siow Chien Fu. Meanwhile, Tan Eng Kiat Dominic is the group’s non-executive chairman.
As Capital World was highly ranked on Greenblatt’s book, Warren Buffett is one of the greatest investors in the world would be interested in the company? we found an answer to this question by six-point acquisition criteria formulated by the Oracle of Omaha to give us some clues. However, more importantly, Buffett’s checklist deep dive into Capital World’s financials can help investors to develop a better understanding of the company. Singapore Stock Blog
With that, let’s turn to Buffett’s acquisition criteria.
1. Pre-tax earnings of at least US$75 million
In 2017, Capital World had pre-tax earnings of RM102.1 million (around US$25.5 million), which is much lower than the first criterion. Retail investors looking into Singapore-listed companies. Buffett has this criterion in place because his acquisition targets need to be of a certain size to move the needle for Berkshire Hathaway to control US$500 billion.
2. Demonstrated the consistent earning power
Buffett to determine the second criterion helps if a company has a stable or growing business. Companies that have a history of steady and growing earnings tend to have competitive advantages that help their businesses grow over time.
3. Good returns on equity (ROE) while no debt
Generally, a company that has a history of generating good ROE has a high chance of possessing durable competitive advantages. This criterion’s purpose is similar to the second: It helps Buffett to identify companies with competitive advantages. The company ended 2017 with an ROE of 49.6% and negligible debt.
4. Management in place
Management point is a reminder to take a look at the people running a company when researching a stock. Buffett did not want to provide a management team when he acquires a company. For stock market investors this criterion has no real meaning, but public-listed companies almost have leaders in place.
5. A simple business
Capital World is a simple business to understand. However, it is worth noting that Buffett is only interested in acquiring businesses that he understands. Going with this thought simple business may be complicated for you, and vice versa.
6. An offering price
This is another criterion in Buffett’s checklist that is not applicable for stock market investors, since stocks have quoted prices that are easily seen, unlike the private businesses that Buffett evaluates for acquisitions. This criterion, though, serves as a useful reminder that the price we pay for a stock is critical. Singapore Stock Market News
If we invest in a stock at an expensive valuation the chances of our investment succeeding will be low. A famous quote from Buffett, “Price is what you pay, a value is what you get,” rings true here.
Coming to Capital World, the company last traded at a stock price of S$0.064 on Monday. This translates to a price-to-book ratio of 0.8.
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