Best Buys February 2024
Best Buys February 2024
My favorite stocks right now
A new month, a new Best Buys List.
Each month, I’ll give an overview of my favorite stocks of the month.
Let’s dive into the update and show you my 5 favorite stocks right now.
January 2024
In January, the S&P 500 increased by 3.8%.
The Fear & Greed Index indicates that we’re currently in ‘Greed’ Mode.
Best & Worst Performers
Here’s an overview of the top 5 best and worst performers within our investable universe last month.
Worst performers
The cheaper great businesses get, the more we like it.
Best Performers
Great but undervalued
Here’s a list of companies that match the following criteria:
Within the investable universe of Compounding Quality
Undervalued compared to their own 5-year average
ROIC > 15%
Expected to grow its FCF by more than 10% per year over the next 5 years
(Click on the picture to expand)
As a reminder, Partners of Compounding Quality get a weekly update of the Investable Universe in the Community.
Best Buys February 2024
Now let’s dive into our 5 favorite stocks for February 2024.
5. Automatic Data Processing
A very attractive industry? Human Resources Management.
Automatic Data Processing is one of the key market leaders in this industry.
The company has an excellent business model with more than 1 million clients. ADP provides cloud-based human capital management solutions worldwide. Think about payroll services, benefits administration, talent management, HR management, insurance, retirement, compliance services, and much more.
The company has a great culture and puts the creation of shareholder value first. Maria Black is only the seventh CEO since the company was founded in 1949.
Automatic Data Processing is a clear market leader in its industry. The company has pricing power as it charges more than its main peers and managed to gain market share over the years. The end market is growing at 5-6% per year indicating that the company is active in a secular trend.
Automatic Data Processing targets an adjusted EPS growth of 11-13% per year in the medium term and a Total Shareholder Return of 13-15%.
Today, ADP trades at a forward PE of 25.3x. Our Earnings Growth Model gives an expected yearly return of 13.4% per year.
4. Text SA
Over the past few years, Text SA has been a Compounding Machine. Since its IPO in 2014, Text SA compounded at 25.1% per year.
The fundamentals of the company look great:
💵 The company has more cash than debt
📈 A ROIC of more than 200% (!)
💸 Translating 50% of its revenue in pure cash
But the most important thing? Text SA is valued very cheaply.
Text SA trades at a forward PE of 12.3x versus a 5-year average of 22.6x.
This indicates an undervaluation of almost 50%!
Our Earnings Growth Model indicates that Text SA should be able to return 14.5% per year to shareholders in the years to come.
Now let’s dive into the top 3.