Wednesday, October 9, 2013

2 things that shaped my screening of companies: CDW as a example


2 tools changed the way I worked, I used to relied more on research reports, blogs, newspapers and forums to get ideas. Now its different.

forumers from Valuebuddies shared this google stock screener:

I find it very useful as a FIRST CUT screening, like yield, growth, etc.

Then went I read their ARs and prosepectus, I will think through the porter's 5 forces, and to some extend SWOT and PEST.

Then I use numbers to verify my thoughts and their business execution.

I stumbled upon CDW using the screening, it pays good dividends, has consistent yearly FCF, show profit resilence and has low gearing, liquidity is low but not as bad as some others, revenue is reasonable. I feel like buying immediately

When I read through the AR and prospectus, I began to sense the risks more accurately, and hold off my buys until I know more.

1) highly dependent on major customers' orders, they do not give breakdown of major customers' orders as they claim it will affect their bargining powers, since there is no effective tracking of customers now, compared to 2005 when they list the customers in prosepctus, I do not like information gap. Given how a single order from a customer can improve their results so much in 2012, I think the customers' base is still fairly concentrated.

2) Competition is intense, and China cost of production is increasing.

3) When I read their announcements, they gave generous stock option to the directors, something which I do not like, but given they pay generous dividends too, I would not say they are unfair to shareholders, it just didn't get anymore attractive.

So if it is a highly cyclical industry, and it is not a alpha company, I need BIG margin of safety. I would need to reassess the entry price


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