🏆 Cannibal stocks

15 Cannibal stocks you should know

Have you ever heard about cannibal stocks?

These are stocks which are heavily buying back their own shares.

Cannibal stocks can be very interesting as your ownership in the company increases every single year without doing anything.

What are cannibal stocks?

Cannibal stocks are companies which are heavily buying back their own shares.

If you own a business which earns $10 per share and the company buys back 50% of its outstanding shares, EPS will increase from $10 to $20. As a result, the stock price should also double.

Here’s an overview of the magic of buybacks by Mohnish Pabrai:

It is important to highlight that share buybacks only create value when the stock is undervalued.

This is very logical as buying back your own shares can be seen as an investment in your own company. As an investor you also only want to buy stocks when they are undervalued.

🏆 15 Cannibal stocks you should know

We used the following criteria to screen for High Quality Cannibal Stocks:

• ROIC > 15%

• Profit margin > 10%

• EPS growth past 5 years > 10%

• Decrease in shares outstanding past 10 years > 30%

1. Domino’s Pizza ($DPZ)

Domino's Pizza is the largest pizza company in the world. They operate a network of company-owned and franchise Domino’s Pizza stores, located throughout the United States as well as other countries.

• FCF Margin: 8.6%

• ROIC: 56.9%

• FCF Yield: 4.3%

• Expected FCF Growth (next 3 years): 6.3%

• Decline in outstanding shares since 2010 (%): 41.1%

2. Ameriprise Financial ($AMP)

Ameriprise Financial operates as a financial planning and services firm. The Company provides financial planning and products and services that are designed to be utilized as solutions for its clients' financial needs.

• FCF Margin: 31.5%

• ROIC: 28.6%

• FCF Yield: 9.9%

• Expected FCF Growth (next 3 years): 18.2%

• Decline in outstanding shares since 2010 (%): 57.3%

3. Discover Financial Services ($DFS)

Discover Financial Services operates as a credit card issuer and electronic payment services company. The Company issues credit cards and offers student and personal loans, as well as savings products.

• FCF Margin: 51.8%

• ROIC: 19.2%

• FCF Yield: 13.3%

• Expected FCF Growth (next 3 years): 7.5%

• Decline in outstanding shares since 2010 (%): 51.0%

4. Dollarama ($DOL)

Dollarama is a Canadian company which operates as an online marketplace. The Company offers cleaning, school, office, home, kitchen, food, health, beauty, hardware, electronics, toys, and pets products.

• FCF Margin: 14.6%

• ROIC: 21.6%

• FCF Yield: 3.8%

• Expected FCF Growth (next 3 years): 12.1%

• Decline in outstanding shares since 2010 (%): 32.9%

5. HCA Healthcare ($HCA)

HCA Healthcare offers health care services. The Hospital provides diagnosis, treatments, consultancy, nursing, surgeries, and other services, as well as medical education, physician resource center, and training programs.

• FCF Margin: 6.9%

• ROIC: 18.3%

• FCF Yield: 6.5%

• Expected FCF Growth (next 3 years): 8.3%

• Decline in outstanding shares since 2010 (%): 35.1%

6. Williams-Sonoma ($WSM)

Williams-Sonoma operates as a home furnishing store. The Company retails cooking and serving equipment, home furnishings, and home accessories through retail stores, mail order catalogs, and e-commerce.

• FCF Margin: 8.1%

• ROIC: 36.2%

• FCF Yield: 11.5%

• Expected FCF Growth (next 3 years): -3.6%

• Decline in outstanding shares since 2010 (%): 32.7%

7. Grand Canyon Education ($LOPE)

Grand Canyon Education provides online post secondary education services. The Company offers graduate and undergraduate degree programs in disciplines of education, business, and healthcare.

• FCF Margin: 20.4%

• ROIC: 23.6%

• FCF Yield: 5.8%

• Expected FCF Growth (next 3 years): 10.3%

• Decline in outstanding shares since 2010 (%): 32.1%

8. Winmark ($WINA)

Winmark develops, franchises, and operates value-oriented retail concepts for stores that buy, sell, trade, and consign used and new merchandise. The Company operates in the United States.

• FCF Margin: 53.6%

• ROIC: 95.9%

• FCF Yield: 3.9%

• Expected FCF Growth (next 3 years): 10.4%

• Decline in outstanding shares since 2010 (%): 31.1%

9. Visa ($V)

Visa is a great quality business with a wide moat and incredible profitability margins. When you invest in Visa, you invest in a strong secular trend.

• FCF Margin: 61.0%

• ROIC: 28.2%

• FCF Yield: 3.7%

• Expected FCF Growth (next 3 years): 15.7%

• Decline in outstanding shares since 2010 (%): 43.4%

10. O’Reilly Automotive ($ORLY)

O'Reilly Automotive retails and supplies automotive aftermarket parts, tools, supplies, equipment, and accessories. The Company sells its products to do-it-yourself customers, professional mechanics, and service technicians.

• FCF Margin: 17.9%

• ROIC: 41.2%

• FCF Yield: 4.0%

• Expected FCF Growth (next 3 years): 10.0%

• Decline in outstanding shares since 2010 (%): 55.8%

11. Autozone ($AZO)

AutoZone is a retailer of automotive replacement parts and accessories. The Company offers an extensive product line including new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products.

• FCF Margin: 15.6%

• ROIC: 41.4%

• FCF Yield: 4.9%

• Expected FCF Growth (next 3 years): 16.5%

• Decline in outstanding shares since 2010 (%): 57.6%

12. PulteGroup ($PHM)

PulteGroup Inc. sells and constructs homes, and purchases, develops, and sells residential land and develops active adult communities. The Company also provides mortgage financing, title insurance, and other services to home buyers.

• FCF Margin: 3.4%

• ROIC: 25.2%

• FCF Yield: 13.2%

• Expected FCF Growth (next 3 years): 15.5%

• Decline in outstanding shares since 2010 (%): 40.9%

13. Dillards ($DDS)

Dillard's operates retail department stores located primarily in the United States. The Company offers products like tops, pants, swimsuits, shorts, skirts, jeans, jackets, tees, shirts, blazers, sandals, sneakers, slippers, and much more.

• FCF Margin: 11.9%

• ROIC: 38.2%

• FCF Yield: 10.8%

• Expected FCF Growth (next 3 years): 20.1%

• Decline in outstanding shares since 2010 (%): 74.4%

14. Applied Materials ($AMAT)

Applied Materials is active in semiconductor wafer fabrication equipment. They are a market leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world.

• FCF Margin: 17.9%

• ROIC: 35.3%

• FCF Yield: 5.6%

• Expected FCF Growth (next 3 years): 2.6%

• Decline in outstanding shares since 2010 (%): 36.5%

15. MSCI (MSCI)

MSCI Inc. provides investment decision support tools to investment institutions worldwide. The Company produces indices and risk and return portfolio analytics for use in managing investment portfolios.

• FCF Margin: 48.1%

• ROIC: 27.9%

• FCF Yield: 2.7%

• Expected FCF Growth (next 3 years): 15.5%

• Decline in outstanding shares since 2010 (%): 33.1%

Overview

Here’s an overview of all companies mentioned:

That’s it for today.

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About the author

Compounding Quality is a professional investor which manages a worldwide equity fund with more than $150 million in Assets Under Management. We have read over 500 investment books and spend more than 50 hours per week researching stocks.