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3 Fairly Priced High-Margin Stocks Warren Buffett Would Like

Everybody wants to make money, big money over the long-haul. You put money into a stock and get twice of this amount back in 10 years. That's great and I have often invested into stocks that doubled in a decade easily.

Today I like to come back to return. It's very important to see that the company makes good profits on its annual sales. The higher the margin, net or operational, the better is the market dominance of the firm.

I like companies with high margins, Google and Apple have unbelievable high margins. You might wonder but they have no direct competition and can charge customers each price they want, there is no alternative and if you need those products or you think you must have them, you must pay the bill.


Warren Buffett is also a great investor who invested into stocks that produce high returns on invested capital. It's the guarantee that the firm makes internal revenues which could be used to pay investors.

I ran a screen that searched for the accompanying criteria: 


Average returns on invested capital > 12% over the last 5 years

- Current return on invested capital > its 5-year average 


I sifted further for organizations with a long history of solid sales and profit improvements combined with robust, and enhancing, net revenues that are not profoundly leveraged by debt. I added the accompanying extra criteria: 
- Average sales growth > 10% over the last 5 years
- Average EPS growth > 10% over the last 5 years
- Average operating profit margin > 10% over the last 5 years
- Current operating profit margin > its 5-year average
3 companies jumped on top of my screen. Very informative...
...it were Fossil, Gentx and Copa Holdings. Those are also some of the biggest losers on the market this year. They are down from 17 to 34 percent but over 5-Years they grow by 96 to 245 percent.


5-year performance (Click to enlarge)

In an earlier article about high return creating stocks, I found Gentex. Which stocks do you like or do you know better companies with high return ratios? Please let me know by leaving a comment. Thank you!


You also may like: 8 Stocks With Nearly Safe Dividends

Gentex (NASDAQ:GNTX) has a market capitalization of $4.05 billion. The company employs 3,801 people, generates revenue of $1.171.86 billion and has a net income of $222.93 million. Gentex’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $367.64 million. The EBITDA margin is 31.37 percent (the operating margin is 26.00 percent and the net profit margin 19.02 percent).
Financial Analysis: The total debt represents 15.48 percent of Gentex’s assets and the total debt in relation to the equity amounts to 20.57 percent. Due to the financial situation, a return on equity of 18.21 percent was realized by Gentex. Twelve trailing months earnings per share reached a value of $1.86. Last fiscal year, Gentex paid $0.56 in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 14.68, the P/S ratio is 3.46 and the P/B ratio is finally 3.04. The dividend yield amounts to 2.31 percent and the beta ratio has a value of 1.10.


Long-Term Stock Price Chart Of Gentex (GNTX)
Long-Term Dividend Payment History of Gentex (GNTX)
Long-Term Dividend Yield History of Gentex (GNTX)

Copa Holdings (NYSE:CPA) has a market capitalization of $4.66 billion. The company employs 8,644 people, generates revenue of $2.608.33 billion and has a net income of $427.47 million. Copa Holdings earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $654.97 million. The EBITDA margin is 25.11 percent (the operating margin is 19.84 percent and the net profit margin 16.39 percent).

Financial Analysis: The total debt represents 27.07 percent of Copa Holdings assets and the total debt in relation to the equity amounts to 56.25 percent. Due to the financial situation, a return on equity of 24.86 percent was realized by Copa Holdings. Twelve trailing months earnings per share reached a value of $11.46. Last fiscal year, Copa Holdings paid $3.71 in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 9.17, the P/S ratio is 1.79 and the P/B ratio is finally 2.44. The dividend yield amounts to 3.65 percent and the beta ratio has a value of 1.19.


Long-Term Stock Price Chart Of Copa Holdings (CPA)
Long-Term Dividend Payment History of Copa Holdings (CPA)
Long-Term Dividend Yield History of Copa Holdings (CPA)

Fossil Group (NASDAQ:FOSL) has a market capitalization of $5.11 billion. The company employs 14,600 people, generates revenue of $3.259.97 billion and has a net income of $388.05 million. Fossil Group’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $643.53 million. The EBITDA margin is 19.74 percent (the operating margin is 17.23 percent and the net profit margin 11.90 percent).

Financial Analysis: The total debt represents 22.78 percent of Fossil Group’s assets and the total debt in relation to the equity amounts to 47.55 percent. Due to the financial situation, a return on equity of 32.85 percent was realized by Fossil Group. Twelve trailing months earnings per share reached a value of $6.47. Last fiscal year, Fossil Group paid no money in the form of dividends to shareholders.

Market Valuation: Here are the price ratios of the company: The P/E ratio is 14.82, the P/S ratio is 1.57 and the P/B ratio is finally 4.95. The dividend yield is not calculable percent and the beta ratio has a value of 1.74.


Long-Term Stock Price Chart Of Fossil Group (FOSL)
Long-Term Dividend Payment History of Fossil Group (FOSL)
Long-Term Dividend Yield History of Fossil Group (FOSL)


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*I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I receive no compensation to write about any specific stock, sector or theme.

2 comments:

  1. Howard9/30/2014

    Tom, I'm confused by the title of this article: "3 Fairly Priced High-Margin Stocks With Yields Over 3%". Only one of the stocks, CPA, has a yield over 3%.

    I was excited about CPA until I looked into it a little further and saw that they slashed the dividend in 2013. (your chart only shows 2006-2012.)

    The current CPA dividend is still a generous 3.65%, but when a company that has shown a recent willingness to cut the dividend, it's not that appealing to me.

    Thanks for continually looking for new gems, though!

    ReplyDelete
  2. Thanks Howard, there was a small mistake with the headline. I just changed it. CPA looks really good but it is still an airline.

    ReplyDelete

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