Legendary value investors like Warren Buffet, Philip Fisher follow one principle – To generate superior returns in the stock market, it is not enough to find wonderful companies, but you need to buy them at the right price. While many of us have heard it multiple times, it takes homework and patience to implement the strategy.

In this article, I will share 25 companies that I shortlisted based on criteria such as ability of company to generate superior returns and value over time and carry least or no debt to survive in current tough times to emerge as winner post slowdown.

Step 1 – Select wonderful companies for long term investment.

Return on Equity – It is calculated as an annual return (net income) divided by the value of its total shareholders’ equity. It represents companies’ ability to turn equity investment into profits. I considered companies that have generated at least 14% or more ROE in the last 5 plus years. Where available I increased the duration to 10 years.

Return on Capital Employed – While ROE considers profits generated on shareholders’ equity, ROCE is the measure of how efficiently a company utilizes all available capital including debts. Companies that have generated at least 12% or more ROE in the last 5 plus years. Where available I increased the duration to 10 years.

Debt/Profit – Shows how much debt company has compared to its annual profits. If things go south for an economy such as the current Coronavirus situation, companies with least or no debt are well-positioned to survive and pay off debts. I used the Debt/Profit ratio of <=3, meaning the company’s debt is less than or equal to 3 years of profits.

The value created – Represents the ability of the company to generate profits and deploy those profits to create value for shareholders in terms of dividends or an increase in market price. It is not worth investing in a high-profit machine that does not know what to do with the cash.

Free Cashflow – Positive Free Cash Flow from operations mean, the company is able to generate positive cash through its sales every year and thus able to pay any bills, salaries on time comfortably. I picked up companies that have only positive cash flow from operations for the last 10 years. This is very stringent criteria and helped me filter out 25 out of 200 companies considered.

Step 2 – Buy them at right price.

I used two criteria to decide whether it is right time to buy the stock.

Price to Free Cash Flow – The ratio helps understand how a company is currently priced compared to its annual Free cash flow from operations. FCF is the reliable metric to understand whether a company is able to sale goods or services while generating positive cash to flourish in long run.

Price to Sales – Price to Earnings (P/E) ratio is can be manipulated but Price to Sales provides very clear picture of how company is prices compared to its sales. Importantly, I considered companies which have above 10% margins to ensure that company is not bloating its sales while losing money.

Here is the list. Do your homework and enjoy value investing.

StockSectorROE 10y > 14%ROCE 10y > 12%Debt/Profit <=3Value created per rupeeCMP 4/30Price/FCF = mkt cap/fcf last yearPrice to salesIndustry Price to SalesDecision
InfosysSoftware17%26%0.32.671519.03.42.7Buy on dip
Mind TreeSoftware24%33%0.02.291524.01.92.7Yes
Tata Elxsi LtdSoftware28%44%0.22.980227.03.12.7Buy on dip
TCSSoftware38%46%0.23.7201427.04.82.7Buy on dip
L&T InfoSoftware36%45%0.06.5159330.02.72.7Yes
BalkrishnaAuto14%13%0.94.293449.03.81.1Buy on dip
Maruti Suziki IndiaAuto15%20%0.112.2535927.02.12.2Yes
Indraprastha gasGas16%24%0.06.347661.05.23.0Buy on dip
AtulChemical20%12%0.05.3485269.03.57.0Yes
Pidilite IndustriesChemical27%35%0.111.41527125.010.57.0Overpriced
Asian PaintsChemical16%12%0.113.51759197.08.27.0Buy on dip
Berger PaintChemical16%16%1.013.1508296.07.67.0Buy on dip
Vinati OrganicaChemical82%113%0.07.7985100.09.47.0Buy on dip
United BrewriesBeverage49%64%0.76.293984.03.73.0Buy on dip
IRCTCTourism27%45%0.03.0132485.011.0NAOverpriced
ITCFMCG23%27%0.04.718225.04.37.0Yes
NestleFMCG23%35%0.037.117925103.013.07.0Overpriced
HULFMCG17%23%0.031.92195106.011.07.0Buy on dip
Jubilant Foodworks FMCG27%28%0.012.01608110.05.57.0Buy on dip
BritaniaFMCG22%16%1.215.83166122.06.67.0Buy on dip
Marico LtdFMCG28%32%0.312.228764.05.07.0Yes
TitanConsumables33%48%2.617.8970124.04.12.5Buy on dip
RelaxoConsumables30%40%1.38.9635270.06.33.8Overpriced
Bata IndiaConsumables17%14%0.711.2136585.05.63.8Buy on dip

Please note that these are not recommendations but are the companies that I am investing in based on market price that provides value investing opportunity. I evaluate these companies each quarter to ensure they still meet above stated criteria of wonderful company within reasonable limits and make buy or sell decisions which I may not be able to communicate in timely manner.

Share your comments and happy investing.