- Rule of Acquisition
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- The ROA Watchlist portfolio is up 458%
Dear Investors,
We’re back. Maybe.
The US stock market has been choppy since June 2024, but since September stock prices have been steadily rising.
Let’s look at the portfolio’s performance and add a new Extraordinary company to the list.
Here’s today’s menu:
ROA Watchlist company ratios
What’s new?
Performance
Risk measures
Investor cooking Nonna's recipe while analysing stocks, after we allowed work from home at ROA.
ROA Watchlist company ratios
This is the updated table of key ratios for each ROA Watchlist company and the portfolio average. We also have the S&P500 average for comparison.
Three things stand out when compared to the S&P500. The ROA Watchlist companies are:
More profitable
Earn higher returns
Have higher valuations (more expensive)
The fact that they are more expensive is not necessarily a bad thing. We expect the market to recognise above average companies and value them accordingly. This is especially beneficial if you are a long-term holder (as you will see in the performance section).
ROA Watchlist and S&P500 ratios - October 2024
What's new?
This month, we’re adding Mama's Creations (Ticker: MAMA) to the list. Mama's is a US food company. According to them, they make “easy-to-prepare, grandma-quality dishes inspired by Italian cuisine”.
I don’t know how the food tastes, but Mama’s Creations is creating shareholder value. That is our favourite dish at ROA. They have a healthy return on capital employed (ROCE) of 24.7%. Their stock price has grown at an astounding 66% per annum for the past 5 years.
The stock is not cheap with a free cash flow yield of 2.1% compared to 5.7% for the S&P500. The lower the yield, the more expensive the company is.
ROA Watchlist performance
In the stock markets, you get what you pay for. If you had been a long-term holder of an equally weighted portfolio comprising the ROA Watchlist, your investment would now be 5.58 times larger than it was on 1 January 2019. That is a compound annual growth rate of 35.5%.
A $100 000 would have become $558 000 in these five and a bit years. The same amount invested in the index would have become $220 000. The ROA Watchlist portfolio did 2.5 times better than the benchmark.
ROA Watchlist vs. MSCI World Index
ROA Watchlist growth rates over different periods:
1-year return: 58.9%
3-year return: 26.4% per annum
5-year return: 34.6% per annum
Since inception: 35.5% per annum
Benchmark performance
For comparison, here are the MSCI World growth rates:
1-year return: 31.3%
3-year return: 8.86% per annum
5-year return: 13.5% per annum
Since inception: 14.6% per annum
The ROA Watchlist is significantly ahead in all periods.
Risk measures
The portfolio has an Alpha of 17.57% and a Beta of 1.18. Alpha is a measure of portfolio outperformance and beta is a measure of risk.
If beta is above 1, the portfolio moves up (or down) more than the index. If beta is below 1, the portfolio moves less than the index.
The ROA Watchlist moves up and down more than the index does.
Conclusion
Whether the markets are up or down from month-to-month is of little concern. If you want to be an Extraordinary Investor, the most important thing to do is own good companies. That is exactly what the ROA Watchlist is - a list of very good companies.
But remember the ROA Watchlist is a starting point for your equity research. It is not a list of investment recommendations.
Links to previous ROA Watchlist updates:
ROA Watchlist September 2024
ROA Watchlist August 2024 (inception)
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