Ask Colin

Do you use Stock Doctor financial health ratings?

The detailed question was:

I only buy stocks that Lincoln Indicators rate as strong or satisfactory. I have noticed that you also use Lincoln. Many times I have looked at Amcor but never bought because of its financial health rating. I feel I have missed an opportunity to buy here. On the other hand I have missed problems e.g. GEM. I note you have Amcor & Pact Group Holdings neither of which pass the Lincoln  health test but have done well. I also note that most LICs have Transurban which has been in distress (Lincoln health) for a long time. Do you use the Lincoln health criteria as a filter?

 

I do not rely on the Stock Doctor health ratings. I prefer to do my own analysis, which you have in my stock journals. Amcor is unusual in that it has bought back many of its shares, so that its debt to equity ratio looks extreme. Pact Group Holdings also has high debt because Ruffy is loath to dilute his ownership by issuing more shares. I place more reliance on the interest cover ratio and the debt to EBITDA ratio which measure their ability to  service and to repay debt. That said, they will be more at risk in a significant downturn. You need to make your own decision on these if you want to go past the Stock Doctor analysis. Transurban I  have not done any work on. I have not looked up what company GEM is, but I have not done any work on it either, so I cannot comment.

 

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