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I am continuously asked: Of all of the Good Companies that I list on this site, which are the best?

It is likely not in your best interest to invest in all of the companies that are Good Companies (which are re-listed for you in the Watch List). That strategy will spread your investment out too much and you will not be able to spend the time necessary to truly understand the companies and their operations. Instead you should focus on 10-20 companies that you can truly understand.

The best way to pick your investments is to diversify your companies into several industry segments (banking, retail, manufacturing, etc.) and that is why the Watch List is so long. It allows you to find several companies that are well run in any given industry segment.

But what if you didn’t care about diversification (perhaps because you satisfied this need via a diversified mutual fund strategy) and you just wanted the best of the best?

The Confident Investor Rating is a continuous integer rating scale. I break up that scale for this site into 3 segments: Poor, Fair, and Good. It is no surprise then that there are companies that are all the way at the top of that scale. The best of the Good Companies are:

  • Millicom International Cellular SA (USA) [stckqut]MICC[/stckqut]
  • Volterra Semiconductor Corporation [stckqut]VLTR[/stckqut]
  • Capital One Financial Corp. [stckqut]COF[/stckqut]
  • Image Sensing Systems, Inc. [stckqut]ISNS[/stckqut]

I think that every portfolio should include these 4 companies. They have consistently grown their EBIT, P/E, EPS and revenue over the last decade. They are simply excellent companies that score 10-20% higher than any other company on the Confident Investor Rating scale.

To be clear, Millicom and Voltera currently have a perfect score on the CIR scale and they are the only 2 companies that I am aware of that currently have that high of a score! Capital One and Image Sensing Systems are the only 2 companies that are currently one level below that perfect score. There are approximately 15 companies that make the next level after that.

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Company name Unit Corporation
Stock ticker UNT
Live stock price [stckqut]UNT[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Poor
Sales growth Poor
EPS growth Poor
P/E growth Poor
EBIT growth Poor
ANALYSIS
Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $2.85
Target stock price (averages with growth) $4.03
Target stock price (averages with no growth) $6.61
Target stock price (manual assumptions) $37.77

“Unit Corporation (Unit) is a contract drilling company. Its operations are
conducted through its subsidiaries, Unit Drilling Company, Unit Petroleum
Company and Superior Pipeline Company, L.L.C (Superior). Unit Drilling
Company is engaged in drilling onshore oil and natural gas wells for others
and for the Company?s own account. Unit Petroleum Company is engaged in the
exploration, development, acquisition and production of oil and natural gas
properties for the Company?s own account (oil and natural gas), and Superior
Pipeline Company, L.L.C. buys, sells, gathers, processes and treats natural
gas for third parties and for its own account (mid-stream). During the year
ended December 31, 2009, Unit acquired interests in approximately 60,000 net
undeveloped acres in the Marcellus Shale Play. ”


Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.


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Company name Deere & Company
Stock ticker DE
Live stock price [stckqut]DE[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Fair
Sales growth Fair
EPS growth Good
P/E growth Poor
EBIT growth Poor
ANALYSIS
Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $55.94
Target stock price (averages with growth) $63.14
Target stock price (averages with no growth) $53.64
Target stock price (manual assumptions) $59.53

“Deere & Company, together with its subsidiaries (John Deere) operates in
three business segments: agriculture and turf, construction and forestry and
credit. The agriculture and turf segment manufactures and distributes a line
of farm and turf equipment and related service parts including large, medium
and utility tractors; loaders; combines, cotton and sugarcane harvesters and
related front-end equipment and sugarcane loaders; tillage, seeding and
application equipment. The construction and forestry segment manufactures,
distributes to dealers and sells at retail a range of machines and service
parts used in construction, earthmoving, material handling and timber
harvesting. The credit segment primarily finances sales and leases by John
Deere dealers of new and used agriculture and turf equipment and
construction and forestry equipment. ”


Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.

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There are quite a few reasons to not invest in a company’s stock. The biggest reason, of course, is that the company is not a good financial investment. Perhaps the earnings are not good or the growth is lackluster. Perhaps you are already over-invested in the sector and want to make sure that your portfolio is balanced. Spending a few minutes on this site will show many examples of companies to avoid for one of many reasons.

Another reason to not buy a stock is that you personally do not like the company. Perhaps it engages in selling products that you don’t think should be sold (alcohol and cigarettes comes to mind). Perhaps it sells fast food and you think Americans eat too much fast food.  Perhaps it is a medical insurance company and you think medical insurance should not be a profit making venture. Perhaps it is a military contractor and you don’t want to be part of the war machine.  Perhaps you think the CEO is a goof ball and cannot see how he will not destroy the company even if it is financially strong today.

Whatever your reason for not investing in a company, that is your right. I will never suggest that someone violate their principles in search of profit. Our standards are intensely personal and should never be violated. Unfortunately, one of the most famous modern investors that I really admire, Jim Cramer of Mad Money, doesn’t agree with me on this point. That is okay – we are all entitled to our opinion.

However, the opposite corollary of this is simply not true! While you should never buy a company’s stock if you don’t like the stock, you definitely should never buy a company’s stock just because you like the company or its products. Peter Lynch (another famous investor) coined the term “buy what you know.”  While this is a fine place to start, you should never own a company’s stock just because you buy the company’s products! You need to make sure that they are an extremely well run organization and do your due diligence on their financial condition.

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Company name General Dynamics Corporation
Stock ticker GD
Live stock price [stckqut]GD[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Fair
Sales growth Poor
EPS growth Fair
P/E growth Poor
EBIT growth Fair
ANALYSIS
Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $52.07
Target stock price (averages with growth) $65.26
Target stock price (averages with no growth) $65.37
Target stock price (manual assumptions) $54.01

“General Dynamics Corporation (General Dynamics) offers a portfolio of
products and services in business aviation; combat vehicles, weapons systems
and munitions; shipbuilding design and construction, and information
systems, technologies and services. General Dynamics operates through four
business groups: Aerospace, Combat Systems, Marine Systems, and Information
Systems and Technology. The Company?s primary customers are the United
States Department of Defense and the intelligence community. It has also
developed relationships with other United States Government customers,
including the Department of Homeland Security and several first-responder
agencies. On September 2, 2009, General Dynamics Advanced Information
Systems, a business unit of General Dynamics, completed the acquisition of
Axsys Technologies, Inc. In May 2010, the Company acquired EBV Explosives
Environmental Company. ”

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.