Last Updated on May 30, 2024 at 12:28 pm
Here are 50 stocks with excellent earnings power track record. Based on Hewitt Heiserman Jr.’s Earnings Power Box, these companies have the potential to self-fund and create value. You can download a free tool to analyze any stock of your choice. This excellent compilation has been put together by Lokesh Verma based on Automated Stock Analysis with the Earnings Power Box.
Update: This tool is now part of the freefincal investor circle.
Disclaimer: The data presented below is for informational purposes only and should not be construed as investment advice. Please do your own research before investing. Neither Lokesh Varma nor I will be responsible for your losses or gains. Please take some time to read and understand the Pros & Cons of Finding Stocks with Earnings Power for Long-Term Profits before proceeding further.
What is Hewitt Heiserman Jr.’s Earnings Power Box?
This is a plot of two the Defensive EPS (earnings per share) vs Enterprising EPS
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The idea is to spot where a company falls in.
This is based on: Earnings Power Valuation Model (doc file) and it was developed into an Excel calculator by Rs. Srivatsan. His guest post is a good starting point to understand the idea: It’s Earnings That Count: Forget the next Infy; Can you identify the next Satyam? Srivatsan has defined enterprising and defensive EPS as follows: Enterprising EPS = (Enterprising Income)/(Shares Outstanding) and Defensive EPS = (Defensive Income)/(Shares Outstanding). Therefore,
Enterprising Income = Net Income – (15% x total capital). Here 15% is the weighted average cost of capital (WACC) and is an expected return. Also, 15% x total capital = enterprising interest.
Defensive Income = Free Cash Flow – change in working capital since last FY.
About Lokesh
Born & brought up in Chandigarh, Lokesh completed his B-Tech in Electronics & engineering and got a full scholarship from French Embassy to pursue Masters in Project Mgmt in Paris/France. He has worked with GE-Healthcare, ABB and currently with a Swiss bank in Zurich. He started investing in the market during his 3rd year of engineering (2008)…learnt hard lessons..gradually improved his investing style. Now his focus is more on portfolio allocation and behavioural aspects of investing than specific stock picking. Still learning, he enjoys the process of investing more than investment!! Loves mediation, yoga and VBA. You can follow him on Twitter: @lukeloki. In fact, he had published the 50 stocks in a series of stocks and I requested him to share his analysis with us. Do thank him, if you benefit from this.
The process to identify 50 stocks with solid earnings power
The following is Lokehs’s email message, reproduced as it best describes his thought process.
Many thanks for reaching out. I draw great inspiration from your work and happy to share with investor community with my little bit. As discussed, please find the attached list and its related 50 graphs.
Top 50 gems: Stocks which have been consistently in Quadrant one (companies that self-fund and create value) for last 3 years (2015/16/17)….frankly I came out of 58 in total after analyzing approx 4500 scripts. Data Source: morningstar.in. The basis is your model (download link below).
In addition to the earning power box graphs (Quadrants), I was also interested in some other basic ratios: ROE, D/E, dividend payout. I believe, these 3 are enough to have a good judgement on management capabilities and their integrity towards shareholders. So I added them in overall graphs. It adds more value to overall picture to end user.
We all know Stock price = PE * EPS….where EPS is more tangible but PE is more psychological. I am always intrigued to know that how market decides on PE. Why some command higher ratio than others. Though, there are many factors (moat, sustainability, brand, reliability, trust) etc but how do you measure these qualities?
I look this problem from another angle i.e. if a company is showing consistent/increasing FCF without debt/leverage or basically self-funding itself, it must be having listed qualities. As one says, action should speak louder than words. That is where Heiserman Earning power quadrant comes into the picture to identify such potential gems. But I also want to backtest this assumption of mine.
Next steps: Based on this assumption that stocks which hit Quadrant 1 consistently sooner or later are recognized bythe market as top quality…I will backtest it using somemulti baggerss in last few years. Hopefully will come up interesting insights in near future.
The 50 stocks with impressive earning power record
This image which lists all 50 stocks was tweeted by Lokesh on March 28th. They are also listed in text format below.
| Accelya Kale Solutions Ltd |
| Ajanta Pharma Ltd |
| Asian Paints Ltd |
| Atul Ltd |
| Aurobindo Pharma Ltd |
| Avanti Feeds Ltd |
| Bajaj Auto Ltd |
| Bajaj Corp Ltd |
| Bodal Chemicals Ltd |
| Britannia Industries Ltd |
| Byke Hospitality Ltd |
| Caplin Point Laboratories Ltd |
| CCL Products India Ltd |
| Colgate-Palmolive (India) Ltd |
| Credit Analysis And Research Ltd |
| Cummins India Ltd |
| Cupid Ltd |
| D B Corp Ltd |
| Dabur India Ltd |
| Dhanuka Agritech Ltd |
| Dharamsi Morarji Chemical Co Ltd |
| Divi’s Laboratories Ltd |
| Dynavision Ltd |
| eClerx Services Ltd |
| Elantas Beck India Ltd |
| Gabriel India Ltd |
| Hawkins Cookers Ltd |
| HCL Technologies Ltd |
| Hero MotoCorp Ltd |
| Hindustan Unilever Ltd |
| Indo Count Industries Ltd |
| Indraprastha Gas Ltd |
| IST Ltd |
| ITC Ltd |
| National Fittings Ltd |
| Orient Refractories Ltd |
| PI Industries Ltd |
| Pidilite Industries Ltd |
| Ultramarine & Pigments Ltd |
| V-Guard Industries Ltd |
| Vinati Organics Ltd |
| VST Industries Ltd |
| Ybrant Digital Ltd |
| Page Industries Ltd |
| Procter & Gamble Hygiene and Health Care Ltd |
| SNL Bearings Ltd |
| Sonata Software Ltd |
| Southern Magnesium & Chemicals Ltd |
| Star Paper Mills Ltd |
| Sun TV Network Ltd |
| Symphony Ltd |
| Tata Consultancy Services Ltd |
| Tata Elxsi Ltd |
| Kewal Kiran Clothing Ltd |
| Marico Ltd |
| Mayur Uniquoters Ltd |
| Menon Bearings Ltd |
Earnings Power Box graphs for the 50 stocks
Five graphs are shown below. The rest are available as a slide show.
Download Earning power box analysis tools
This tool is now part of the freefincal investor circle.
Acknowledgements
Lokesh Varma and R. Srivatsan for generously sharing their expertise with all of us. Hewitt Heiserman Jr for a fantastic analytical method. He has used the US version of the above tool and is impressed with it. Kudos to Srivatsan. If you find this useful, please thank Lokesh. A gentle reminder to pay heed to the disclaimer mentioned above.
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