Health & Fitness
The Rule of 10 - Finding Investment Ideas For Your Retirement Portfolio
For those who take matters into their own hands and make their own retirement investment decisions.
With every new initial public offering (IPO) that makes crazy gains in the first few months like LinkedIn, Zipcar and Sodastream I wanted to take the time to do a value screen for existing companies to hold in my ROTH IRA. I try my best to stay away from new IPO’s because for every LinkedIn that gains 50% on the first day there are companies like Medgenics that become worthless. The method I chose to employ this time around I would like to call the Rule of 10. To start the company;
- must be an American company
- must have an average trading volume of 500k shares per day
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- must have a company valuation under 10 billion dollars
I am searching for companies that are relatively small that can grow or can be bought by a larger company. Average trading volume is important because I want to be able to buy into the company at a fair price - and when there aren’t a lot of shares being exchanged it makes it more costly to acquire them.
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Now the Rule of 10
- must have a debt/equity ratio under 10%
- must have a price/cash ratio under 10
- must have a price/free cash flow under 10
- and of course it must be a profitable company
The debt/equity ratio under 10 ensures that I won’t be buying any banks (hate those guys) and gives me confidence that the company I am looking to buy is living within its means. The price to cash ratios tell me that this company has cash in the bank and it generates plenty of it relative to the price the company is being offered at in the market.
Ticker
Company
Sector
Industry
LRCX*
Lam Research Corporation
Technology
Semiconductor Equipment & Materials
KBR
KBR, Inc.
Services
Technical Services
NVLS
Novellus Systems, Inc.
Technology
Semiconductor Equipment & Materials
IPXL
Impax Laboratories Inc.
Healthcare
Drug Manufacturers - Major
BPI
Bridgepoint Education, Inc.
Services
Education & Training Services
This list provides a great starting point for those who wish to investigate investment opportunities in value stocks
*full disclosure I own shares of LRCX
