Watchlist Update, Sells, & 2 New Positions

Photo by Jonathan Mabey on Unsplash

I regularly update my watchlist of wonderful companies that I've profiled on this website and own in my portfolio.

My goal is to own these wonderful companies when they are undervalued and sell if they no longer meet my criteria or become significantly overvalued. This watchlist check-in helps me identify positions I want to trim, add to, sell, or initiate.

I focus on finding stocks that are attractively valued in absolute terms based on metrics such as EV/EBIT, forward P/E, and FCF yield.

I also aim to acquire them when they trade at a discount to their historical price/sales values. Historical price/sales valuations have proven to be extremely useful to me. On their own, price/sales ratios aren't particularly meaningful, as one company could be expensive at 0.5x sales while another could be a bargain at 10x sales. The key is to consider the company's prospects. The best way to leverage this metric is to look at a company's typical price/sales ratio and buy when it’s trading at a discount to that average.

A good example of this right now is Costco. It currently trades at 1.48x sales, which might not seem excessive, but it's a 51% premium to its 5-year average of .98x. Conversely, MarketAxess currently trades at 9.86x sales, which looks expensive, but it is a 47% discount to its usual trading level. The reason for this discrepancy? MarketAxess averages a return on invested capital of 27% and an operating margin above 40%, while Costco averages 15.9% and sub-3.5% operating margins.

This is why my watchlist is ranked by the current discount to each company's average price/sales ratio over the past five years. It helps me visually identify potential bargains, or overvalued postions that I own which I need to sell/trim.

Here is the current list of companies I am tracking that are trading at a premium to their historical price/sales valuation. Highlighted positions represent stocks I currently own and are under consideration for trimming or selling.