Source: Premier Pro Wash & Seal
[0:02] good morning jeremy forest with premier pro washington seal uh back once again just going over some stock picking uh metrics that i look at again i'm not a financial advisor this is just what has personally worked for me over the last 20 years that i thought that i would share this uh not just with my family and employees but i would put together something uh for for others to view as well so um in the last two videos i made i made one
[0:32] video on how to value the stock to see if it's worth uh you know buying at that price um and then the other video i did uh we talked about some of the factors that we're looking for with the business what makes it competitive uh what what a moat is and those kind of things this video is going to be more about the metrics uh that we're looking for and so i put together a list of things
[1:04] that um i'm looking at when i'm looking at a business i found a business that that meets a lot of my criteria it's at a price that i like um let's dive into some of the metrics now um first off going back to warren buffett who is arguably the greatest investor of all time you definitely want to invest in wonderful companies i would rather i would rather pay a little bit more for a high quality business than i would a
[1:35] subpar business and buying a cheap so quality businesses are what we're looking for best in class strong leadership is important so you want to look at that that businesses ceo and leadership team and make sure that you know it displays uh strong leadership as we talked about in another video moat which is essentially its competitive advantage you're looking for businesses that are best in class
[2:07] that have a strong competitive advantage who own a large part of the market share these companies typically will thrive in good times and bad and remember we want companies that are going to last and if you look down here one of the the criterias that i look for is i always ask myself before i invest into a business will this business most likely still be here 10 years from now because remember i'm always thinking long-term perspective i'm never buying a
[2:38] stock and just with the intention of buying it and selling it that year can it happen of course it can happen things happen but my my mindset is to buy that stock to never sell and so i always before i purchase any any stock i always ask myself 10 years from now will this business still last um coca-cola i know people are still going to drink coke 10 years from now um let's take a hot topic in today's world
[3:09] is twitter i know elon musk is looking into buying it has agreed verbally to buy it and so but when i look at twitter i don't know if twitter is going to be around 10 years from now i mean there could be some other social media platform that comes along that everyone jumps to and twitter is just kind of a thing in the past but coca-cola i know coke's gonna be here starbucks i know starbucks is gonna be here apple i know apple's gonna be here 10 years from now so
[3:40] have that mindset that you're looking for businesses at 10 15 20 years from now you have no doubt in your mind they're still going to be around will they be around i mean sure we you could look at a coca-cola and they might not be here 15 years from now but the chance of that happen is very very very slim so hopefully you understand what i mean by that and then as i've alluded to before i'm really big into dividends i love passive income
[4:11] everyone talks about passive income usually they associate that with rental uh properties uh real estate i'm not saying you're wrong with real estate obviously i know several people that make a good living with real estate and they have rental properties i tried rental properties i did not like it i don't like you know middle of the night the ac goes out now i gotta run and fix that problem overnight i like businesses that run by themselves that the dividend comes in
[4:42] like clockwork and uh that's why i like uh to look into a business that not only pays a dividend but has a history of increasing those dividends over time because that's how you beat inflation um some great books to turn to if you're looking um to invest it i would highly recommend any any book that covers warren buffett again one of the greatest investors of all time if not the greatest investor of
[5:12] all time for something like 50 or 60 years he's compounded his money at a 20 or greater rate that essentially means his money is going to double about every three and a half years and if you do that over 10 15 20 30 years your money can really grow really really fast so any book that contains warren buffett peter lynch has a little bit different style than warren buffett but he is a he's a great uh
[5:44] author to read he achieved an amazing record as well if don't quote me on this but it was something like 30 a year for 13 years so he's uh definitely someone to pay attention one of his most important books is a book called one up on wall street uh great book motley fool it's a website uh read by tom and david gardner this is what actually got me started over 20 years ago
[6:15] uh tom and david gardner and their website motley fool lots of valuable information recommended whether you're a new investor or a seasoned investor they always have great articles and literature to read and then benjamin graham this was actually one of warren buffett's mentors his book the intelligent investor according to warren buffett is the greatest investment book of all time
[6:47] it is very long it's uh it's very deep uh i would not recommend that book if you're just starting out because it is very technical but once you get some understanding i definitely recommend his book and read anything about benjamin graham these two guys are highly known as value investors and all the time you'll hear that value investor value investing is dead but it works it works decade after decade as soon as
[7:20] they start claiming that value investing is dead we run into a recession and as you see right now value investing our value stocks are the ones going up why technology and everything is is crashing right now so regardless of what they tell you value investing there's still a place in it i've achieved great returns with this philosophy and i encourage others to at least be open-minded to it um now getting to some of the metrics that i look for we went over a little bit over the pe
[7:50] the price to earnings personally i'm looking for pes lower than 20. it's not to say that i won't buy a business with a pe of 25 or 30. but that company's got to be doing some some other things really special it's got to be a very high quality business for me to warrant paying a pe over 30. some of the stocks like apple
[8:21] microsoft they're high high quality stocks so you're not going to see those stocks with a p e of 10 and if you do you definitely want to jump in if if that occurs or there's something that really went wrong with that business but i like to look for businesses uh with the pe preferably under 20 and then calculate that with the dividend and you can get some really strong returns if you're patient if you're disciplined and you know what you're doing so pe is is obviously high
[8:54] i talked about in another video just remember you're not wrong if you're a growth investor there's definitely money to be made that's how you can if you buy a small business and you get lucky let's say you bought tesla ten years ago and you put five thousand dollars in it and you hear about someone that turned five thousand dollars into a million dollars that's your small speculative stocks that typically do that i am into some of those now but remember i built my foundation off of dividend
[9:27] stocks so it's allowing me now to to be a little bit more aggressive because i have dividends to fall back on but when you're first beginning i would recommend that you build your foundation around high quality long-lasting businesses that you know are going to be around 10 15 20 years from now that have strong moats they have strong leadership build your foundation there and then once you get that built and get that started then that will allow you to be a little bit
[9:58] more aggressive later on if you want to some people have the philosophy that growing the growth and while you're young you can take more risk and yes you can but i still believe firmly that you should build your foundation around high quality dividend-paying stocks first but to each their own the debt level i want to see this is where you'll mostly find this on the the balance sheet and when you're looking at this i know this can seem intimidating or a lot but you know when i first started this in
[10:30] the 90s you had to actually go back and punch in the numbers yourself and calculate them in today's world all of these are already you just click on the company or you google this and you can find this information just like that it's not like it used to be where you'd have to actually manually go back and calculate it yourself so and this is third grade math it just looks intimidating but once you understand a few of the metrics to look for you'll realize it's not near as intimidating as it seems you want to buy simple
[11:01] businesses starbucks is a very simple business they sell coffee it's the second most consumed liquid in the world behind water it's a very simple business to understand uh altria it costs 30 cents to to put a pack of cigarettes together but they sell it for seven dollars and it's an addictive product there's no there's no advancements they don't have to come up with the next iphone it's just a simple product that they can be repeated you want to find simple
[11:32] businesses with a healthy cash to debt flow so for me again you can find this on the balance sheet when you're looking at the balance sheet you want to look at their cash and cash equivalents and you want to ideally try to find a business that has twice as much cash than liabilities so this is very important make sure you're not investing into debt-ridden companies because if you are and they have a lot of debt and they can't back
[12:03] up that debt because they don't have a lot of cash and you run into hard times you get a pandemic that suddenly starts or where as we're seeing inflation at a 40-year high and so people are having to cut back on some things if a company is loaded with debt then they may have to stop their dividends or they may have to if they do carry their dividends they're not going to increase them or they they've got to cut somewhere so that's why it's important that you definitely invest in in businesses that have a strong cash to debt equity ratio
[12:36] so again i like uh prefer that the businesses i buy they have twice as much cash on hand as debt um a rising consistent earning per share growth that goes back to a video i made before that where we talked about we want to see consistent earnings per share growth and remember a stock price is heavily tied to the earnings again let me repeat that because that's very important a stock price will be
[13:07] heavily influenced by earnings so that's why you want to see a consistent rising earning per share growth and then with that you also want to see a consistent rising sales growth as well so you know if they sold a million dollars worth of products in 2012 and now we're in 2022 you don't want them to still just be selling a million dollars in revenue right you probably want it to be somewhere around 3 million you want to see that consistently growing right along with earnings per share
[13:37] this last one the the free cash flow that's just essentially money left over so you find that as well on the balance sheet you want to check out their free cash flow and make sure that you have a company that's that's making money the dividend payout ratio by now you know i love dividend paying stocks but you want to make sure that you're investing into a business that
[14:08] can afford those dividends and they can afford to keep not only paying on but increasing them over time so you will find the dividend paid payout ratio i prefer uh businesses that have a payout ratio less than 60 percent because once you get into those higher numbers again if something goes wrong if we have a an unexpected pandemic or whatever war i mean there's there's a litany of things that could
[14:40] rapidly suddenly happen that you're not prepared for um you want to find businesses with a payout ratio of less than 60 because when tough times hit you want to be invested in a company that's still going to pay you there are a few industries where maybe that payout ratio is like i'll say tobacco for instance is their management goal is to keep their payout ratio around 80 percent they're a mature company they're not expanding rapidly into other markets so
[15:12] they can afford for their payout ratio to be a little bit higher so that's not a hard fast rule that's just the general rule that for the majority of cases so when you're looking at the payout ratio look at what that industry averages or payout ratio and see if that company is kind of in line for example look at home builders there's a dr horton is is a home builder uh this industry average payout ratio is
[15:44] like 50 well um dr hortons is like 10 so you can see they're well below the average meaning they've got a lot of room for dividend growth in the future profit margins this tells you how profitable a company is as you can imagine that's very important i like to see profit margins at least 15 or higher again this will be dependent on on the industry some technology stocks they might have
[16:15] profit margins in the 40s and then you might have like a railroad industry that has profit margins uh 10 12 so you you need to understand the industry that you're investing in and kind of gauge that but i like to see profit margins uh 15 or higher on good high quality businesses and then return on equity same thing i like to see a return on equity this is basically telling you how efficient
[16:46] leadership and management is with their with the money left over and anytime you can find a business that consistently and returns a return on equity higher than 15 you know that management knows what they're doing that's that's a that's a healthy number so here are some metrics that i look for i'm sure i missed something but this is this is the main core of a metrics i'm looking for from management to dividends
[17:17] how strong their their uh their competitive advantages also known as mode debt level the price to earnings consistent uh earnings per share growth all of these things matter again i know it looks complicated when you're first looking at it but try not to be overwhelmed by this this is very simple stuff if you know what you're looking for you get a little bit of experience looking for these kind
[17:48] of things and you're dead set on buying individual stocks i think that if you look into industries if you're first beginning like we talked about in another video consumer staples is a great place to to begin it's not the only sector uh that i invest in or recommend but that's as strong that would build you a strong foundation and if you're using these metrics and you're calculating uh using the the tool i i demonstrated on how to value a stock i think you're setting yourself up
[18:20] for some really strong returns nothing's guaranteed i'm just telling you once again what has worked for me i'm sharing with you some of the metrics i look for and i i really hope this helps you and you know the goal is to to better ourselves and one thing i love about the stock market is it doesn't matter who you are where you came from how tall you are if you're fat if you're skinny if you're short if you're tall if you're black if
[18:53] you're white it doesn't matter the stock market does not care this is something that we could all take advantage of if we know what to look for and sometimes it just seems overwhelming it seems very complicated but if you break it down into small sections and again you know what you're looking for don't let it intimidate you understand that the stock market is one of the greatest wealth creators of all time and it's there for everyone to use if you know what you're looking for so don't be intimidated go out try it learn
[19:25] from it and whatever you do make sure you read some literature on warren buffett even if you're not a value investor it will help you become a better investor i hope this helps please let me know if there's anything else you guys would look uh like me to uh do a video on in the comments section but i think this pretty much wraps up the main things uh that i'm looking for in this little three-part series i put together so thank you guys for watching i hope it helps