In the search for value, I have found that very few stocks meet my criteria to become "investment grade" due to the rigor of tests a stock must meet to be worth of making into my list. While I have a very specific set of criteria which will likely differ in several different ways from each reader, I generally take into consideration the following factors with a stock I deem investment-worthy:
Valuation Relative to Peers
Earnings Quality
Asset Quality
Dividend Yield
Growth potential
Competitive Advantage, Long-term Outlook
Notice how stock price is not factored anywhere into the calculation. In my view, the level at which a stock is trading should have no impact whatsoever on whether a stock is to be considered a good or bad investment. Just because a stock is trading near its 52-week high, or has passed its 30-day or 150-day moving average, does not mean it is not still a great value play.
The reason for this is that the stock price of some companies lag behind their fundamentals, sometimes resulting in a stock run-up which seems to be excessive. Investors may sell because they simply don’t know "how long the party will last," however, such companies tend to continue their rise over time due to their solid fundamentals and growth prospects relative to their peers.
Two examples of companies which have been on fantastic runs of late, but which I still believe are value plays are Fortis Inc. (TSX:FTS) and Algonquin Power & Utilites Corp. (TSX:AQN).
Invest Wisely, my friends.
