Investing in Urbanization: Priority List

Published on 08/08/18 | Saurav Sen | 1,239 Words

The BuyGist:

  • This is a numerical extension of Investing in Urbanization.
  • The objective is to narrow down my choices to one or two companies, so I can dig in.
  • The litmus tests were: the usual Buylyst Screener, and an additional screener for Emerging Markets exposure.
  • It turned out that there wasn’t much overlap among the two screeners.
  • But there is one candidate that passes all tests. And there are a couple more that are worth a second look.

The Urban Stack

In my last worldview – Investing in Urbanization – I came up with a list of companies that might be worth a look. As a recap, these were the types of companies I was looking for:

  1. Construction Equipment manufacturers
  2. Truck manufacturers
  3. Van manufacturers
  4. Electrical Grid experts
  5. Train manufacturers

But since the stack was sort of long, I needed to apply my first-date screener in the hope that I’m left with one or two on which I can focus. As a recap, I look for 3 things in my first-date screener:

  1. Does the company generate cash flow? I measure this by Free Cash Flow.
  2. Is it a high Return on Equity company – that’s another way of saying:
    1. Is it a financially productive company? Meaning…
    2. Does Management do a good job of allocating shareholder capital?
  3. Does the company have too much debt? If it does, it means the ROE number in inflated, and cash interest charges may eat into Free Cash Flow.

In this case, while looking at my “urbanization stack”, I added another criterion:

  1. Does it have considerable emerging market exposure? That’s where most of the urban migration will happen.
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