50 stocks with solid earnings power: Ability to self-fund and create value

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.

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

The idea is to spot where a company falls in.

Heisermans Earnings power box - 50 stocks with solid earnings power: Ability to self-fund and create value

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.
50 stocks with solid earnings power: Ability to self-fund and create value
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.

Accelya Kale Solutions Ltd  - 50 stocks with solid earnings power: Ability to self-fund and create value CARE Ratings Ltd  - 50 stocks with solid earnings power: Ability to self-fund and create value Dabur India Ltd  - 50 stocks with solid earnings power: Ability to self-fund and create value HCL Technologies Ltd  - 50 stocks with solid earnings power: Ability to self-fund and create value Pidilite Industries Ltd  - 50 stocks with solid earnings power: Ability to self-fund and create value Tata Elxsi Ltd  - 50 stocks with solid earnings power: Ability to self-fund and create value

Download Earning power box analysis tools

Automated Earnings Power Stock Analysis With Screener.in data

Automated Stock Analysis with the Earnings Power Box with MorningStar data

U.S. Stock Analysis Spreadsheet

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 discalimer mentioned above.

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