Buying Shares | Slack Investor

Lessons in Going Down – and October 2024 – End of Month Update

Dramatic falls in a stock price … are not very nice. However, they are part of the game when investing in growth stocks. These falls usually come during reporting season. This is sometimes known as ‘confession season’.

ASX-listed companies are all required to report their earnings within two months of June 30 and December 31. The half-year reports are usually floated into the market during August and February – and this is the main time that the confessions come in. ASX companies can also give quarterly updates and, they are strictly bound by ‘Continuous Disclosure’. This is where they are obliged to promptly announce any new information that may affect the stock price.

Once an entity becomes aware of any information concerning it, that a reasonable person would expect to have a material effect on the price, or value of the entity’s securities, the entity must immediately tell ASX that information – ASX Continuous Disclosure Guide

When bad news comes in, there will be an announcement and there is usually a fall in stock price. Most of the time, bad news comes in the form of an earnings forecast not being met – an earnings downgrade. It is time for Slack Investor to get off the couch.

Slack Investor is not a ‘Day Trader’ and, also Slack! This means that he doesn’t get wind of a dramatic fall in one of my holdings till the end of the day. Sometimes it is even days after the event.

This gives him time to think about what to do next, and there are two schools of thought.

Accept the loss and sell the stock to employ your funds elsewhere – as bad news often comes as a series.
Reassess the numbers on the company and ask ‘Would you invest in this company today at the current price?‘

Experience tells Slack Investor that he is usually better off with option 1 – and investing the proceeds with a, hopefully, price increasing stock.

Recent Case Studies from the Slack Investor Rogue File

Megaport (MP1)

1-YR Chart Megaport – From Yahoo Finance

This was a sudden fall from grace as it was bought in August 2024. There was an earnings downgrade and it was an easy decision to get out – as no ‘love’ had been developed for the company. Slack Investor was wrong on his understanding of this companies earnings growth.

Webjet (WEB,WJL)

This is a complex one. Slack Investor recently bought Webjet (WEB) at around $9 on the basis of their fast growing internet business WebBeds – and its seemingly good projected numbers. In September 2024, Webjet went through a demerger that split the business into its retail Travel Agent (Webjet Group – WJL.ASX) and its global Business to Business booking site, mostly WebBeds, (WEB Travel Group – WEB.ASX). Webjet announced a profit warning on 14th October and the share price plummeted 35% in a day. Whoops!

1-YR Chart WEB Travel Group – From Yahoo Finance

Slack Investor planned to sell WJL, the retail travel agent part of the business (not a high growth sector), and keep the growing (+22% CAGR) demerged WebBeds (WEB). This might be a good business one day – but the big 35% drop spooked him and he sold them both for a combined price of $4.80. Ouch!

Codan (CDA)

Slack Investor thinks this is a good growing business but they had some revenue shortfalls that caused a 19% 1-day price drop in 2022. He probably should have got out then. However, he has grimly stuck with them and, after 2 years of falling stock prices, they seem to be on the right track. It remains in his portfolio.

Dicker Data (DDR)

5-YR Chart Dicker Data – From Yahoo Finance

After a 16% fall in a day in May 2024, Slack Investor reassessed the numbers on this stock – a projected 2026 PE of 16 and an ROE of 39%. The numbers looked pretty good – and he held on. However, the last two years of revenue growth have been 2% and 4% respectively. Slack Investor is not sure what is going on … but this company has not been growing. He sold at $8.69 this week.

Taking a loss … and moving on

This is a real skill – that doesn’t come easily – but is essential for managing a portfolio of growth stocks. Slack Investor is better at this than he used to be. Usually, growth stocks will come with a high Price/Earnings ratio as the future earnings growth will be factored into the price of the stock. These type of companies are particularly susceptible to a rapid decline in price when bad news emerges that might affect future earnings.

“Some people automatically sell the ‘winners‘— stocks that go up— and hold on to their ‘losers‘— stocks that go down— which is about as sensible as pulling out the flowers and watering the weeds” – Peter Lynch – One Up On Wall Street

Slack Investor tries to adhere to the Peter Lynch philosophy when tending to his garden of stocks. He doesn’t always get these decisions right – but he does find it ‘cleansing’ to get rid of the bad performers. With experience, he has found that, more often than not, if there is a dramatic 1–2 day fall in a stock price (>15%) – it often takes a while to recover! Slack Investor is usually happy to take the loss and move his funds elsewhere. There is ‘opportunity cost’ in staying with a stock that is going nowhere.

Despite these bad performers, he doesn’t beat himself up about them. It is just part of investing. He takes solace that his whole portfolio is up about 8% in the 4 months of this financial year – and he does have good long-term results.

With the money raised from selling the dud investments, he bought into quality earnings with half the proceeds topping up his Supply Network (SNL) holding. The rest went into a new stock that he has been watching for a while – the logistics software business WiseTech (WTC).

The company had a price drop over a saucy scandal involving the founder and CEO Richard White. He resigned and Slack Investor is betting that these private-life dalliances should not interrupt the fine profitability (ROE 2026 20%) and established revenue growth (1-yr 2024 CAGR 20%) of this great Australian company.

1-YR Chart WiseTech Global – From Yahoo Finance

October 2024 – End of Month Update

Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.

All markets drifted down slightly. As many of the big market crashes have occurred in September and October, Slack Investor is always relieved to get past this time of year.

For October, the ASX 200 (-1.3%), the FTSE 100 (-1.5%) and the S&P 500 (-1.0%).

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Slack Investor goes to the Market

The takeover of Altium (ALU) has been done and Slack Investor had some cash at his disposal. At the end of April 2024, he went through the Slack Process of deciding which stocks to buy with the money that Altium was about to provide. In the spirit of this great company, he concentrated mostly on growth stocks and presented the list below.

The list of growth companies that Slack Investor would like to buy – after a filtering process that I carried out April 2024

Topping up existing stocks

Some of the stocks that Slack Investor owns are like old friends. He is always looking to add to ‘tried and true’ stocks with a good track record of growth and good management. All of the above were considered. However, as REA was already a large holding (7.9%), Slack Investor passed on REA. He did buy some TLX and also added to his holdings of TNE, SNL, NDQ, CAR and PME.

New Holdings

Profitability and Growth are two things that really impress. Slack Investor has been looking for smaller companies that have some potential. The newer stocks usually come from the financial press, newsletters and email subscriptions.

One thing he insists on however, is that they have a pleasing income chart that shows both historical growth (Black bars) and projected growth (Grey bars) – from Marketscreener.

Income growth and projected growth for XRF Scientific – From MarketScreener – Financial tab

As well as increasing income, Slack Investor likes his stocks to be profitable – a projected ROE (in 2026) to be more than 15%. He also wants them to be not too expensive – a projected P/E ratio (in 2026) of less than 40-50. Of course, he also screens for growth, using the 3-yr CAGR – and hope that it is also above 15%.

Slack Investor is not sure how any of these stocks will fare – but if you get the numbers right, good things will happen on most occasions. The 3-yr CAGR for Nick Scali is low at 8%, but past results were affected by COVID 19. Slack Investor has bought some NCK as they have just expanded into the UK and, if anyone can make this work, it will be the crack management team at Nick Scali.

Company	Ticker	ROE 2026	P/E 2026	CAGR 3-yr	Buy Price	Price 9/10
Megaport	MP1	25	37	35	$9.03	$7.39
Nick Scali	NCK	36	13	8	$13.73	$16.13
XRF Scientific	XRF	18	20	24	$1.55	$1.70
Betashares Diversified Growth	DHHF	–	–	–	$34.01	$34.78
Botanix Pharma	BOT	27	18	–	$0.37	$0.37
Betashares NextGen NASDAQ	JNDQ	–	–	–	$15.47	$15.80
Webjet	WEB/WJL	16	22	16	$9.03	$7.89
RPM Holdings	RUL	15 (?)	39	18	$2.57	$2.86

These newer stocks are in the Slack Investor ‘nursery’ for now. Sometimes a company looks good on paper – but fails to keep growing for a number of reasons (often these reasons are opaque to Slack Investor)! While in the nursery, Slack Investor keeps a weekly watch and if they fall below the buying price by around 15%, he will usually cut his losses and sell.

This happened to Megaport (MP1). He sold the holding a few weeks ago for around $7.90. Webjet (WEB) has just gone through a stock split into WEB and WJL – and is on a close watch.

Slack Investor is off on holiday to Thailand tomorrow … and, has pushed this post out early (before his usual mid-month burst of activity).

Slack Investor Report Card Part 2 … and Financial Year 2024

This continues the series of judgement – on a few calls by Slack Investor in recent blogs. The good and the bad are presented – to illustrate that you don’t have to get everything right to be a successful investor.

15/01/2023 & 15/05/2023 –Nuns Know Best & Alignment

I tried to make the case that the ASX 200 was both undervalued and showing signs of momentum in the charts. At the the publishing dates, the ASX 200 was trading at 7328 and 7267. At 30/06/24, it is 7767, up 5.9 % and 6.8%. In the meantime, the US S&P 500, which Slack Investor thought was overvalued at the time, is up 32% for the same period. Could do better, Slack Investor – 5/10

01/07/2023 – Advice for a young man

I went through a whittling down process for a few stocks that might be suitable for my nephew who was just starting out on his investing journey. I wanted to gather a basket of well known, growing companies that were not outrageously over priced- I generally don’t like the predicted P/E Ratio to get above 40 when I’m buying, as this indicates the current price of the company is 40 times its predicted earnings (expensive) . The yield (dividend) is not that important to a young investor, it is the total growth that counts.

Looking at the figures, even Slack Investor is surprised with the success of his suggestions after only 12 months – an average 1-yr growth of +34.2%.

Again, Coles Group (COL) is the only dud. Despite COL having a high Return on Equity (ROE), I should have considered the competitive retail environment, its lack of history of growth and how it was spending most of its profits – returning to shareholders as dividends, rather than growing the business.

I hope that my nephew took this advice and is now a convert to stocks as a way to make your money grow. A top effort Slack Investor 9/10; Nephew ?/10

15/09/2023 – Buying Shares the Slack Way

I went through the Slack investor buying process and I had to narrow things down to the one new share that I would buy at the time with a limited amount of funds. I selected Computershare (CPU). In hindsight, I should have trusted my gut here – I have never liked their confusing website! At the the publishing date, CPU was trading at $25.85. At 30/06/24, it is $26.34, up 1.8%. I had sold out of this stock, at a loss, 5 months after I bought it as I didn’t like the way that the chart was heading. A dud trade Slack Investor – 1/10

15/10/2023 – Alphabet … Google It

Slack Investor went a bit in depth here as to why Alphabet (NASDAQ : GOOGL) was such a major portion of his portfolio. At the the publishing date, GOOGL was trading at $137.36 USD. At 30/06/24, it is $182.15 USD, up 35%, A good trade Slack Investor, is this all your own work? – 9/10.

15/05/2024 – Slack Investor vs Centrelink

I am delighted to report that Centrelink have sent me a Commonwealth Seniors’ Health Card (CSHC). I have yet to make use of it … but I am excited that my perseverance with the forms (with the help of very generous new annual income limit rules) has paid off. You really tried hard here Slack Investor 8/10; Centrelink 3/10 – The application process is confusing and tedious. The turn around time for the application was about 2 months – but, I don’t blame the workers at Centrelink here – there has been chronic underfunding in staff and processes for years.

Financial Year 2024

A quick review of how the Slack followed markets fared in FY 2024 – pretty well I might say!

ASX 200

After a solid 2023, FY 2024 could be described as a slow start – but big finish. In raw figures the Australian Index rose 7.8 %. When accumulated dividends are re-invested, the ASX 200 Net Total Return, the yearly returns are more impressive, up 12.2%.

FTSE 100

This bad boy has shown great improvement. The UK Index rose 8.4 %. When accumulated dividends are re-invested, the FTSE 100 Total Return was up 11.4%.

S&P 500

That crazy country, the mighty US of A, has done it again. the US Index rose 22.7 %. When accumulated dividends are re-invested, the S&P 500 Total Return was up a mighty 24.2%.

Where to go fishing? – Part 3 – Where Fish Whisperers Go – and May 2024 – End of Month Update

A Day’s Fishing (circa 1923) – Edward Henry Potthast

After narrowing down my personal buying list to just 5 stocks – BetaShares NASDAQ 100 ETF (NDQ), Telix Pharmaceuticals (TLX), Technology One (TNE), Supply Network (SNL) and REA Group (REA), Slack Investor is always keen to get a second opinion – and that’s where the “fish whisperers” come in.

At this stage, I have so far bought into just one of the prospects (TLX) as, I’m hoping for a bit of a price contraction in the other stocks over the June/July period. I am not in a particular hurry to buy – as there has been recent news of “Interest cuts delayed” that might present a bit of downward pressure on stocks.

Sometimes, it makes sense to listen to the “Fish Whisperers” – those with special knowledge of the stock market. One of the financial sites that I will always look at for ideas is Livewire. Slack Investor is a subscriber to their free financial news email – just register with them. There is nothing more that I like than to saddle up to the hard work of financial experts – the hard thing, of course, is sifting through the chaff, for the wheat. But there are ways of identifying quality information – Do their methods echo with your own sound thoughts?

In a recent Livewire, Michael Wayne from Medallion went through a similar exercise to Slack Investor in looking for growth companies. His approach was slightly different to my simpler approach. Medallion Group has a far more resources than Slack Investor and his analysis more thorough, but, he still came up with a list that resonates with Slack Investors own.

Let’s first have a look at Michael’s established record. He helped set up a Medallion Australian Equities Growth Fund in March last year, so there is only limited data on performance as there is a short track record. The fund growth since inception is very good (net 12-mth performance (+17.69%) – c.f ASX 200 (+10.68%) – but you would have to say that these are “early days”. Consistent long term fund performance is notoriously hard with 75% of Australian Mid to Small Cap funds underperforming the index over 10 years.

Medallion charges a management fee of 1.5% plus an outperformance fee of 20% (Oooohhh … that hurts!!) – but in fairness, their net results are, so far, exceptional – and their methodology of screening stocks looks fundamentally sound.

Long Term Compounders

These are three of the most beautiful words to Slack Investor – they exactly describe the type of stocks that I want to own. A stock that will generate growth over the long term. Let’s have a more detailed look at how the Medallion Financial Group approaches this search for long term compounders.

A consistent compounder is essentially a business that’s able to deliver consistent or persistent earnings and revenue growth over time in a reliable nature. So these are businesses that are price makers, not price takers
Michael Wayne – Medallion Financial Group

From – How to identify consistent compounders – Michael Wayne – Livewire – Click to Enlarge

Michael Wayne prepared the list by screening the whole ASX for companies that have a five-year sales Compound Annual Growth Rate (CAGR) of above 5%, and a CAPE 10-year CAGR of more than 5%. Slack Investor is happy to have a further look at all of these companies.

These businesses also have a dividend per share CAGR over 10 years of more than 5%, five-year average gross margins above 10% and a five-year average return on equity over 10%. Yes Michael … keep up this research – as this is the sort of stuff that makes Slack Investor swoon!

May 2024 – End of Month Update

Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.

There is a bit of end of Financial year calm with the ASX 200 (+0.5%). The FTSE 100 (+1.6%) is moving on and, in a moment that seems to celebrate ex-President Trump’s guilty verdict on all 34 counts of falsifying business records, the S&P 500 moves on (+3.7%).

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Where to go fishing? – Part 2 – Gutting the Fish – and April 2024 – End of Month Update

After the excitement of catching a fish there is the relatively unpleasant process of gutting the fish before things get exciting again – the cooking and the eating!

Same with stocks, the financial media is full of “darling” stocks. However, Slack Investor likes to take a deep look into the entrails before parting with his precious funds for the glorious pleasure of share ownership. The data gathering is not the most exciting part of investing and Slack Investor likes to keep things simple here – and finds the best way to sort out the worthy fish is to put them on a list with a few relevant numbers ” the guts”.

Profitability and Growth are two things that really impress Slack Investor and I have probably oversimplified matters by just representing these complex things with one number for each. For Profitability, I am using the Return on Invested Capital (ROIC) – For Growth, I am using the Compound Annual Growth rate (CAGR) for the companies revenue over a 3-yr period. Both of these numbers were obtained from the excellent Morningstar site, search for the company and then use the “Key Stats” tab. I tried to use the latest figures available.

The companies that Slack Investor did a bit of research on is not definitive … I usually look into my own portfolio first to see if the investment case still stands … and, if the company has been performing well, I like to add to my holding.

The newer stocks come from a variety of sources – usually the financial press. I tend to stay away from mining and retail stocks because of the uncertainties present in these sectors. As these potential buys are a replacement for my largest portfolio member, Altium (Potential Takeover target), I have concentrated on the “growth stocks” The first screening is for growth using the CAGR and the ROIC.

Gather the Data

I have put all my prospective BUYS in a list

Company	Ticker	ROIC 23	CAGR 3-yr
Alphabet (US)	GOOGL	24	19
Altium Ltd	ALU	23	13
Audinate	AD8	12	32
Car Group	CAR	7	25
Cochlear Ltd	COH	17	14
Codan Ltd	CDA	14	9
CSL Ltd	CSL	10	13
Dicker Data	DDR	16	4
Fisher & Paykel Healthcare Corp Ltd	FPH	14	8
Microsoft (US)	MSFT	29	14
NextDC	NXT	-133	22
NVIDEA Corp (US)	NVDA	66	54
Pro Medicus	PME	50	30
REA Group Ltd	REA	20	16
Resmed	RMD	15	13
Seek Ltd	SEK	-1	-8
Supply Network	SNL	24	23
Technology One	TNE	30	13
Telix Pharmaceuticals	TLX	35	380
WiseTech	WTC	60	24
Xero	XRO	-5	23

The list needs a bit of narrowing down so I applied a filter to reduce the field to a top 10. I refined the list to those companies that have a historical ROIC of greater than 20% and a 3-yr CAGR of greater than 12% – this now becomes a list of great, profitable, efficient companies that are growing. I also added Forecast P/E ratios for 2026 from MarketScreener.

Company	Ticker	ROIC 23	CAGR 3-yr	P/E 2026
NVIDEA Corp (US)	NVDA	66	54	26
WiseTech	WTC	60	24	60
Pro Medicus	PME	50	30	82
Telix Pharmaceuticals	TLX	35	380	35
Technology One	TNE	30	13	33
Microsoft (US)	MSFT	29	14	26
Alphabet (US)	GOOGL	24	19	18
Supply Network	SNL	24	23	21
Altium Ltd	ALU	23	13	45
REA Group Ltd	REA	20	16	36

The Price/Earnings Filter

The above list represents some profitable, growing companies – but they might be priced too highly. Slack Investor generally doesn’t like to pay for a forecast P/E ratio of over 40 when I’m buying a new growth stock – that means the projected earnings are 40 times the current price of the stock. This reduces the table to 7 stocks. I can reduce the table even further by taking out the 3 US based stocks (MSFT, NVDA, GOOGL) – which I can buy in one trade by purchasing more of the ASX listed NDQ . The Betashares NASDAQ 100 ETF was already on my BUY radar. Have a look at the 1-yr returns on these amazing growth companies in the table below of top NDQ holdings – It is unlikely that this stellar growth will continue … but there is certainly momentum here.

BetaShares NASDAQ 100 ETF (NDQ) top ten holdings – Morningstar

The Final List – this is not advice!

Company	Ticker	ROIC 23	CAGR 3-yr	P/E 2026	Price
Telix Pharmaceuticals	TLX	35	380	35	$15.05
Technology One	TNE	30	13	33	$16.25
Supply Network	SNL	24	23	21	$20.05
REA Group Ltd	REA	20	16	36	$179.64
Betashares NASDAQ 100	NDQ	–	18	27 (2024)	$41.35

As well as BetaShares NASDAQ 100 ETF (NDQ), I will be looking forward to topping up my supplies of Technology One, Supply Network and REA Group and hoping for a bit of a price contraction over the next couple of months. The share price shown in this table is at the end of April 2024.

A newcomer to this list is Telix Pharmaceuticals (TLX) – a relatively new entry to the ASX that develops radiopharmaceuticals for cancer diagnosis and treatment. There is a lot of talk of this companies potential.

“It’s developing into a premier global radiopharmaceutical company … I see this as going on to become the next CSL in Australia.”
Shane Fitzgerald, Monash Investors – Livewire

A CAGR of 380 is skewed by recent figures – but they definitely are a growth company – but there is risk here! Slack Investor will roll the dice and add a bit of this to his portfolio while it is still around the $15 mark – there is a bit of momentum with this stock – might have to get in soon! He likes that they already have a money-making product and they have a further product pipeline ready to roll out.

(Telix Pharmaceuticals) has demonstrated extraordinary progress by generating over $100 million in revenue in the March 2023 quarter, a remarkable leap from zero, less than twelve months ago.
Sean Sequeira – Australian Eagle Asset Management

April 2024 – End of Month Update

Slack Investor is IN for Australian index shares, the US Index S&P 500 and the FTSE 100.

A bit of the froth has settled down with the ASX 200 (-2.9%) and the S&P 500 (-4.2%). However, the FTSE 100 (+2.4%) is powering on at the moment. After a while in the doldrums, the FTSE 100 is now reaching record highs with the expectation of some interest rate cuts soon.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Where to go fishing? – Part 1 – Profitablity and Growth

The obvious answer is … where there are fish.

Slack Investor is always on the lookout for growth companies … particularly when he is on the BUY! Since retirement, I haven’t had much chance to be on the Buy side of a transaction lately – as there isn’t that flow of fresh new money coming into the coffers from employment. Pre-retirement, any new money would flow into the cash reserves of my Super (SMSF -Self Managed Super Fund). When a sufficient amount of cash had built up, I would look around for some company shares to buy.

However, with the expected inflow of a bit of cash with the impending sale of Altium, I am starting to look around for suitable receivers of Slack Investor loot. Slack Investor is “Going Fishing”. The first thing I want in my pond is profitable companies – but I also want them to have a record of growth. In the second part of this fishing series, I will try to narrow things down to companies that I would actually like to buy.

Measures of Profitability

Slack Investor likes a company, that he invests in, to not only make a profit – but to use its shareholder funds in the best way to make a profit. There are many ways to look at profitability, but Slack Investor is pretty lazy in this regard and you won’t find him forensically gazing over profit and loss statements from a company report. I prefer couple of simple ratios to get an overview – I am no expert accountant.

Return on Equity (ROE)

ROE = Net Income/Shareholder Equity

I have always used Return on Equity (ROE) as a simple measure to give an idea on how a company is growing. Strictly speaking, the ROE is more a measure of profitability and how well it grows each dollar of company funds.

The higher the ROE, the more efficient a company’s management is at generating income and growth from its equity financing.
Investopedia

This metric is very easy to find in market aggregator sites such as Yahoo.com, Morningstar, or Investing.com. For a deep dive, I prefer Marketscreener.com – which has the advantage of showing Predicted ROE for the next few years on each companies financial page. One of the problems with ROE is that, companies with debt can present an inflated ROE.

Return on Invested Capital (ROIC)

ROIC = Net Profit (After Tax)/Average Invested Capital

The purest way of looking at how good a company is in converting shareholders money into profit is the ROIC. Unfortunately, this figure is harder to come by on the generic financial aggregator sites. This ratio is superior to the ROE as it accounts for the debt levels of a company – as the Average Invested Capital is the Average Equity – Average Debt.

Measure of Growth

Compound annual growth rate (CAGR)

A quick way of determining if a company is growing is the CAGR. It is often constructed from past , data. The “Compound Annual Growth Rate”—is the annualized rate of growth in the value of the Earnings, or Revenue, over a stated period. The maths is a bit complicated and best done on a spreadsheet or a search around the financial sites. I found limited CAGR data for stocks at Morningstar and finbox.com

CAGR is defined as the annualized growth rate in the value of a financial metric – such as revenue and EBITDA – or an investment across a specified period.
Wall Street Prep

Putting together Profitability and Growth

Fortunately there are some really nice blokes in the financial world that share the burden of responsibility to educate people about the share market as well as operating a profitable business. A shout out to Owen Raszkiewicz of the RASK Group. A great place to start your financial education with Owen is his Australian Finance podcast that he co-hosts with Kate Campbell. Slack Investor will often tune in to their discussions.

Below is a table Owen prepared in August 2023 that ranks Australian stocks in terms of their profitability (ROIC – Return on Invested Capital – Column F). He also shows, in the last column, the stock’s historical growth rate for the 5 years 2017-2022.

From Rask Media – ASX’s best companies published August 2023 – ranked in order of ROIC- Click on image to enlarge

This is a great place to start fishing, metrics for profitability and growth in one place. Pro Medicus is standing out here – High profitability (ROIC 55.48%) and high historical growth (5-yr CAGR 24.22%). A complete picture needs both of these metrics. For example, Woolworths has a high profitability (ROIC 41.28%) but is laggard in historical growth (5-yr CAGR 2.10%).

The next article in this series will look at how Slack Investor narrows these stocks down and then screens them further with the P/E Ratio to try to make sure that each potential buying stock is not overpriced.

Altium (ALU)- Thanks, so sad to see you go … and March 2024 – End of Month Update

Renesas CEO Hidetoshi Shibata (left) and Altium CEO Aram Mirkazemi (right) firming up the takeover deal – From Business News Australia.

It is with very mixed feelings that Slack investor reports on the likely takeover of Altium (ALU) – one of his major holdings (16.6% of total Portfolio) – by the Japanese Renesas Electronics Corporation.

Renesas will acquire all outstanding shares of Altium for a cash price of A$68.50 per share, representing a total equity value of approximately A$9.1 billion
Altium Press Release – February 15, 2024

Although this represents a tidy profit, as I first bought into Altium about 10 years ago when they were trading at $3.30, I will be genuinely sad to stop being a shareholder of this wonderful company. I envisaged holding Altium shares for a very, very, long time!

Slack Investor’s 10-yr journey as an Altium shareholder – Monthly price chart from incrediblecharts.com – click chart for better resolution

Why I originally bought into Altium?

Let’s get this straight, Slack Investor is no stock picking genius. My portion of profitable sold shares is only about 55%. That is, I have made losses on 45% of them – it is not that impressive! – but my overall performance results are good. This is because I follow the Peter Lynch philosophy – where you try to stay in the stocks that are performing well and “weed out” the stocks that are not doing well.

“Some stocks go up 20-30 percent – and they get rid of it and hold onto the dogs. And it’s sort of like watering the weeds and cutting out the flowers. You want to let the winners run.”
Peter Lynch – Legendary Investor and Fund Manager. From 1977 until 1990, he ran the Magellan fund where he averaged a 29.2% annual return for those years.

Slack Investor is always on the lookout for growth companies … and Altium poked up its head and looked at me in 2014 from one of the financial sites that I read. The next step is a bit of independent research. My “go to” here is the most excellent Market Screener site. I went through my usual process for buying and checked the Market Screener/Financials tab for a reasonable projected Price/Earnings ratio, an established record of improvement in earnings, and a forecast Return on Equity (ROE) above 15%. Altium stood out here with no debt and a ROE of between 35 and 50. This company was growing!

After my initial purchase, I bought more parcels of ALU over the next two years as the shares continued to grow and their outlook projections were confirmed.

The Altium Story

Altium is an Australian-based software company that provides electronics design software to circuit-board engineers. These circuit boards are in every bit of technology that we own.

By the time Slack Investor had woken up to the Altium story, Aram Mirkazemi was the established CEO of Altium Limited. He came to Australia from Iran as a refugee in the 1980’s after a 6-month stint in a refugee camp in Pakistan. He did not speak English. After gaining qualifications in IT and engineering, he met Nick Martin, the founder of Altium, at a soccer game and Nick offered him a job. After an eventual falling out, Aram left to start his own software company. When Nick steeped down as CEO, Aram returned to Altium with a vision to make Altium a world player in printed circuit board design.

… in order to be able to change the way the electronics industry works you need to be able to standardise on one platform, like the graphics industry did with Photoshop or Microsoft’s dominance of the operating system and productivity tools market.

After several years of growth and gaining market share. The Altium board rejected an offer of $38.50 per share from Autodesk Inc back in June 2021 as they thought that the offer ‘significantly undervalues’ the companies prospects. The 2024 Renesas offer is yet to be approved by shareholders, but it seems that all the significant players are already “on board”. The offer A$68.50 per share in cash. represents a premium of approximately 34% to the pre-offer price.

All I can say is, it has been an honour to be part-owner (shareholder) of this great company – Thank you Aram and his team. I will be selling part of my holding this tax year (to spread the capital gain over two tax years) and wait for the cash offer to come through in 2025 for the remainder.

March 2024 – End of Month Update

More Happy Days in the stock market. As the troubled world marches on, all Slack Investor followed markets rose this month. The ASX 200 up 2.6%, the FTSE 100 up 4.2%, and the S&P 500 up 3.1%,

Slack Investor remains IN for the FTSE 100, the ASX 200, and the US Index S&P 500.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been completed.

Alphabet … Google It

Sundar Pichai, the CEO of Google and its parent company Alphabet looks ready to play the “evil genius”.

At around 15% of my investments, Alphabet (US:GOOGL) is a major holding in my portfolio. It is my biggest international holding. I first dipped into the stock back in 2019 and have been trying to top up (in small amounts) each year since.

Since Larry Page and Sergey Brin launched Google in 2004 with a killer search engine, the many tentacles of Google/Alphabet have spread into the everyday life of billions. Youtube alone had 2.6 bn annual users in 2022.

(Google’s search and advertising) is Alphabet’s best business, accounting for 80% of Google’s total revenue in 2022 including Google Search and other properties like Google Network ads and YouTube. The remaining 20% comes from Google Cloud (9.4%) and its apps, hardware and content businesses (10.4%).
From Intelligent Investor

Why keep investing in Alphabet?

Before any investment decision, Slack Investor will do a bit of research. Market Screener has a Financial page on each stock.

When the income chart looks like the above showing a track record of growth (prior to 2023) – and projected further growth up to 2025 – I’m interested. A look now at Slack Investors favourite finance indicators. A projected Return on Assets (ROE) of 24.5 in 2025 (well above 15%), a 2025 predicted PE ratio of 17.5 (very low for a growth stock), and plenty of cash on hand for further aquisitions – it all looks good.

Nitpicking

Despite admiring the skill of Alphabet management in aquisition and company growth, Slack Investor is not enamoured with everything this company does. There are some things that I find annoying. Back in 2017, they sudddenly dropped their popular Google Finance Portfolio feature. Slack Investor then migrated to Yahoo Finance to keep track of his portfolio. I note that Google Finance has recently reinstated its porfolio feature – but I have already moved.

To keep growing revenue, many of their channels are being further monetized. I love using Youtube for music, entertainment, and the millions of helpful “how to” guides. However, the ads at the start of the clips are tedious. This is an attempt to get people into Youtube (no ad) Premium at $13.99 per month.

I also had a recent battle to reduce the amount of data in my google account (Photos, Google Drive, gmail) to below the 15 Gb free limit. This is deliberatly not a simple process and seems to be designed to push people into more storage through a subscription starting at $2.49 per month.

These are relatively small quibbles though – and Slack Investor really doesn’t expect “something for nothing”. I continue to hold and a happy buyer of this company using an international e-broking account with CMC Markets – Alphabet, I hope, will be a very long-term holding.

Buying Shares the Slack Way

The last time Slack Investor wrote about how he buys shares was two years ago, and The Slack Buying Process is worth a read for the detail. I must admit that not much has changed in the method that I use. Two of the shares that I bought back then Alphabet (US:GOOGL) and Betashares NASDAQ 100 (ASX:NDQ) have done OK in that time period, but Coles (ASX:COL) has lagged a bit, but because of dividends, is not on the losing pile yet.

	Buying Price AUG 2021 (AUD)	Current Price SEP 2023 (AUD)
US:GOOGL	$195.45	$214.53
ASX:NDQ	$34.09	$36.28
ASX:COL	$17.94	$15.85

Regardless of these preliminary two-year results, nothing fundamentally has changed for these companies and will stick things out for at least a 5-yr period – and then judge performance.

Since retiring, not much buying and selling goes on in my stable pile. For the investing pile, as I am now mostly a fully-invested “Buy and Hold” type of bloke, I don’t get to buy very often. The only opportunities come when I sell something, or my dividends build up beyond my living expenses.

The first thing to do is get a list of companies that you might be interested in. Slack Investor is an avid reader of the financial press. I get heaps of buying ideas from investment sites such as the AFR, Livewire, Morningstar, ShareCafe, InvestSmart, Motley Fool, etc. I pay particular attention when any articles I read mention “growth”.

Unlike when I am buying fish, for buying shares, I really want to look at the “guts” of a company. For this purpose, my best friend is the excellent Market Screener site. I type in the company name and then look at the Financials Tab. This gives me an overview of what the company has done and what analysts project that a company will do. There are lots of things to look at when evaluating a company – Management team, past performance, level of debt, projected sales, etc. However, if I could boil down a company to its essence with just two financial measures, it would be these two discussed below.

Return on Equity (ROE)

The ROE is usually expressed as a percentage and is the Companies

ROE = Stated Net Income/ Shareholder Equity.

For an instant way to look at whether a company is profitable, they will report a positive ROE. It is an indicator of how well the company uses shareholder funds. If I was getting a 5% return on my money in the bank, my ROE for that investment would be 5%. Obviously a high ROE is good. Slack investor likes his investments to have an ROE of at least 15%.

Sadly, the ROE can sometimes be manipulated by the management team by using a number of tricks. They might use accounting loopholes to distort earnings, or hiding assets off the balance sheet – both of these tricks will inflate the ROE.

As the denominator of the ROE equation is just shareholder equity, it ignores the effect of borrowings. Companies can boost their ROE by taking on large loans (risk). Also, a company with a large cash reserve (desirable for potential take-overs and share buy backs) will be penalised in the ROE calculation.

By screening out companies with large debt and including only companies with a track record of good management,- you can try to mitigate these risks in ROE calculation. Slack Investor is always looking forward, and he likes to use the Projected ROE of Future Income/Shareholder Equity.

Price/Earnings Ratio (PE)

The PE Ratio is defined as a companies share price to its earnings per share.

PE Ratio = Current Share Price/ Current Earnings per Share.

Slack Investor is usually looking at “growth” companies with a relatively high PE Ratio. A high PE ratio could either mean that a company’s stock is overvalued, or that there is an expectation that there might be high growth rates in the future.

By itself, the PE Ratio can be misleading. Sometimes, the earnings of a company can be manipulated through accounting measures and, there is a flaw in this ratio as it does not account for the assets and liabilities of a company.

A PE ratio is best used when compared against similar companies in the same industry or, for a single company across a period of time. Slack Investor usually gets the jitters when the projected PE Ratio is over the 40-50 mark.

Putting it all together

	PE 2026	ROE % 2026
ASX	20	14
CPU	16	33
TNE	38	34
XRO	62	20
SEK	25	11
COH	38	23
RMD	18	22

I put all my possible “growth” stock buying options into a table and used Market screener Financials to get the projected (future) values for PE Ratio and ROE for 2026. I rejected XRO as it was too expensive (PE Ratio greater than 40) and ASX and SEK for low ROE ( <15%). TNE is a great company with good ROE and no debt, but slightly expensive (ROE 38). COH was also slightly expensive (ROE 38).

This left me with CPU (Computershare) and RMD (Resmed). Both good companies with good prospects. Lets have a look at the charts.

For now, Resmed (RMD) seems to be on a downward trend – and Computershare (CPU) on the up. The trend is your friend. This is not advice, but I bought some Computershare on the basis of the above analysis – slightly worried about the debt levels of CPU (which would tend to inflate the ROE), but I bought a small amount and will give this investment 5 years – then re-evaluate.