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Author: badsin Big gold star, 5000 posts Old School Fool Home Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 46840  
Subject: 101A: Company selection criteria Date: 9/6/2004 11:21 AM
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As a next step for this project, here're the criteria we could use to screen the companies to analyze. The guiding principle is K.I.S.S. - ideally we're trying to 'focus on simple, (relatively) easy to understand companies, keep the financial/mathematical mumbo jumbo down to the bare minimum, select both potential winners and losers to maximise the learning, etc.'

Company selection criteria:
· Easy for laypersons to relate to and have at least a user opinion
· Simple i.e. standalone, not part of a conglomerate, not more than 1 or 2 business divisions
· At least 5 year public ownership
· Primary listing on NYSE / NASDAQ
· Full profile/financials etc. available from Yahoo Finance /MSN Money
· Covered by at least 10 analysts
· Considered to be either a potential 'winner' or a potential 'loser' over the next 2-3 years in terms of Total return vs the S&P 500
· Currently paying a dividend

Rationale
· Easy for laypersons to relate to - companies with everyday, well known brands clearly identified with one or two frequently used product categories

· Simple i.e. standalone, not part of a conglomerate:
GE would be the classic example of what we're not looking for. Each of its multiple business units would require a fair bit of work to understand - let alone the significantly different analytical skills and knowhow required. Putting them all together to get some idea of its investment potential would probably be a Herculean task. Not quite in the 'basics' category.

· At least 5 year public ownership
This is simply to ensure we have sufficient back data to review in terms of both financials and market/stock performance

· Primary listing on NYSE / NASDAQ
This is to eliminate OTC stocks (e.g. AMEX listings)

· Full profile/financials etc. available from Yahoo Finance /MSN Money
Since the project is intended to be highly interactive, this will help any Fool dig up info. and contribute without having a subscription to ValueLine/S&P/Reuters/Morningstar etc.

· Covered by at least 10 analysts
Over the years I've learned the value of this criterion in selecting equities. Analyst coverage is a great help in getting management to be forthcoming about the company's results and prospects. Companies with low coverage, conversely, are much more difficult to read for rank outsiders. We don't necessarily have to agree/disagree with the analyst opinions - but they provide a great start for doing so.

· Considered to be either a potential 'winner' or a potential 'loser' over the next 2-3 years in terms of Total return vs the S&P 500
This is more of an avoidance criterion than a selection one. While there's nothing wrong with analyzing companies going nowhere in a hurry, I frankly can't see much fun in doing so :)

· Currently paying a dividend
Dividend paying companies make basic valuation much simpler. Of course that probably eliminates the next Starbucks or Microsoft or Taser - but that's why this project is called '101' and not 'Rising Stars' :)

Any thoughts? Once I get some feedback, I'd like to put it all together in a final set of criteria and then start proposing potential candidates for analysis.

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