The 6 categories on the investment menu

Posted by Resource Center 25/07/2019 0 Comment(s) Investing, Finance & Economics,

The 6 categories on the investment menu

 

 

1. Slow growers

This company is typically large and operates in a mature industry. The growth of the company is expected to be in the low single digits of percentages. If you invest in such a company you typically do it for dividends. If a company isn't going anywhere fast neither will its stock price (not a favorite).

 

2. Stalwarts

These are the inbetweeners. Earnings growth rate of 10-12% per year is standard for this category. Under normal conditions you want to sell these companies off if they make a quick 30-50% gain.

 

3. Fast growers

Aggressive new enterprises growing at 20% or more per annum. If the company can be able to keep up the growth for several years it would be a great investment. At the same time you have to stay rational e.g. If Amazon keeps its current growth rate at 30% in 10 yrs (2029) its revenue will be equal to the GDP of France, does this sound logical?

 

4. Cyclicals

Companies whose revenues and profits rise and fall with the business cycle. Typically they produce services and/or products that the consumer will postpone consumption of in times of financial uncertainty e.g. cars - people don't have to switch cars every 6 years even if thy prefer to.

 

5. Turnarounds

Turnarounds are potential fatalities companies with declining earnings and/or problematic balance sheets. If the company doesn't go down and instead manages to flourish once again, stock owners are rewarded thereafter.

An interesting characteristic about the turnarounds is that their ups and downs aren't as related to the market in general as the rest of the categories. A situation where a company has gotten bad reputation is usually a profitable turnaround case.

 

6. Asset plays

Situations where the value of the company indicates that the market has missed out on something valuable that the company owns are asset plays. Such undervalued assets could be real estate, patents, natural resources or even company losses (as these are deductible from future earnings.) Value of company > market cap of company.

 

A company can belong to more than one of them at once. Also companies don't stay in the same category forever.

 

Author

CEO

Ian M. Mugoya

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