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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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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.

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Company name Alexion Pharmaceuticals, Inc.
Stock ticker ALXN
Live stock price [stckqut]ALXN[/stckqut]
P/E compared to competitors Fair
MANAGEMENT EXECUTION
Employee productivity Good
Sales growth Good
EPS growth Good
P/E growth Poor
EBIT growth Good
ANALYSIS
Confident Investor Rating Good
Target stock price (TWCA growth scenario) $125.89
Target stock price (averages with growth) $204.31
Target stock price (averages with no growth) $126.37
Target stock price (manual assumptions) $114.35

“Alexion Pharmaceuticals, Inc. (Alexion) is a biopharmaceutical company,
which is engaged in the discovery, development and commercialization of
biologic therapeutic products aimed at treating patients with severe and
life-threatening disease states, including hematologic, kidney and
neurologic diseases, transplant rejection, cancer and autoimmune disorders.
Its marketed product Soliris (eculizumab) is a therapy approved for the
treatment of patients with paroxysmal nocturnal hemoglobinuria (PNH). In
April 2009 and August 2009, the United States food and drug administration
(FDA) and the European Commission (E.C.), respectively, granted Soliris
orphan drug designation for the treatment of patients with atypical
Hemolytic Uremic Syndrome (aHUS). In December 2009, its Rhode Island
manufacturing facility received regulatory approval from the E.C. for the
production of Soliris. ”

Confident Investor comments: At this price and at this time, I think that a Confident Investor can confidently invest in this stock.

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Company name Tier Technologies, Inc.
Stock ticker TIER
Live stock price [stckqut]TIER[/stckqut]
Confident Investor Rating Poor

“Tier Technologies, Inc. (Tier) is a provider of biller direct electronic
payment solutions, through its primary brand Official Payments. These
solutions provide payment services via multiple channels, including the
Internet, automated Interactive Voice Response (IVR), call center and
point-of-sale (POS), environments. Its solutions include multiple enhanced
payment services, including convenience fee payments, absorbed payments,
payment reminder and automated payment scheduling. It also offers its
clients a range of payment choices, including credit and debit cards,
electronic checks, cash and money orders, and emerging payment methods to
meet the needs of their customers. Its segments include Electronic Payment
Solutions (EPS) and Wind-down operations. ”

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock. It is not possible to confidently invest in a company that is not currently profitable.