1. Brand. The business must possess a readily identifiable brand with favourable consumer perception.
2. Growth. The business must be able to grow its market share domestically and/or globally.
3. Track Record. The business must have a track record; else one cannot project its future.
4. Relevancy. The business must be relevant in multiple markets in that the business can expand its products into varying countries with ease.
5. Management. The business must possess able managers that focus on building shareholder value by; maintaining high return on equity, buying back shares, and owning personal stake in the business.
6. Competitive Advantage. The business must possess such a strong competitive advantage that other businesses fail to entrench on its market.
7. Earnings. The business must be growing its earnings over time.
8. Pricing Power. The business must be able to increase prices over time in line with inflation or greater.
9. Return on Equity. The business must enjoy high return on equity. Otherwise, it is not building shareholder value.
10. Consistency. The business must be consistent. The inconsistent business changes with the wind.
11. Profit Margin. The business must generate consistently high profit margins.
12. Personal Appeal. The business must appeal to you. You must love to such an extent its products or services that you can endorse the business without hesitation.
13. Book Value. The business must be growing its book value and, in turn, its underlying value.
14. Simplicity. The business must be selling a product or service that anyone can understand.
15. Repeat Use. The business must sell a product or service that is purchased consistently and continuously by the consumer.
16. Utility. The business must possess lasting utility such that underlying its brand, its products or services satisfy a consumer need or want.
17. Market Leader. The business must be a market leader. The market leader enjoys little competition.
18. Consumer Base. The business must enjoy a large consumer base, preferably both domestically and globally, so that it is not plagued by volatile revenues.
19. Employee Morale. The business’s employees must be happy to work there. A happy top line creates a better bottom line.
20. Adaptability. A quality business must be relevant forever by understanding how to sell in future markets.
21. Self Growth. The business must not grow by financing credit but instead grow by effectively allocating its retained earnings.
22. Debt. The business must not be burdened by significant long term debt, otherwise risk staggered growth.
stock valuation
Manulife Financial: Stock Valuation
Investing>Originally written July, 2010
Manulife Financial is North America’s largest and the world’s fourth largest insurance business. Although Manulife Financial’s main operations are located in North America, it controls significant operations in Asia, spanning ten countries there. And while the successful investor values highly Manulife Financial, the common investor currently does not. Manulife Financial, as of July 2010, traded with a historically low P/E of 7.49. The common investor feels that because Manulife Financial did not hedge its segregated funds before the financial crisis, that each stock market correction will effectively hammer it. However, Manulife Financial’s portfolio consists of quality holdings; real estate in Canada, USA and Asia totalling $6 billion, stock’s totalling $5.3 billion, and money market funds and bonds totalling billions. Finally, even as Manulife Financial increasingly hedges its segregated funds, targeting a 70% hedge by 2012, common investor sentiment is “too little too late”. However, by comparing Manulife Financial’s underlying business to that of Great-West Life Co, another Canadian insurance business, one should conclude Manulife Financial’s stock is grossly undervalued.
First, Manulife Financial’s $29 billion book value is higher than its $28 billion market capitalization. Evidently, the successful investor can buy a piece of Manulife Financial for no premium. Second, Manulife Financial’s cash holdings and investments are substantial. Manulife Financial’s management is clearly maximizing its float – the money it receives from policy holders that is then invested or held in cash holdings. And overall, Great-West Lifeco’s fundamentals pale in comparison to those of Manulife Financial. However, Great-West Lifeco’s market capitalization falls only $4 billion short of that of Manulife’s. Further, because Manulife Financial is not trading with a premium, the successful investor would unlock its cash value. As of 2010, Manulife Financial held $19 billion in cash holdings, which comprised 68% of its market capitalization and 66% of its book value. However, before unlocking Manulife Financials cash value, the successful investor would take into account its $6 billion in long term debt. The equation to unlock Manulife’s cash value helps valuate Manulife Financial’s real stock price:
Manulife Financial’s real stock price = actual stock price [$15] + (cash per share [$10.8] – long term debt per share [$3.52])
Finally, the equation delivers Manulife’s real stock price, $22.28, an increase of 49% over its actual $15 stock price.
Robin R. Speziale 