Nine 'have it all' shares

“A great business at a fair price is superior to a fair business at a great price” isn’t just a smart attitude. Depending on who you ask, it also encapsulates Charlie Munger’s role in the Damascene conversion of one Warren Buffett, the Benjamin Graham disciple who swapped margins of safety and discounts to book value for consistently high returns on equity and economic moats, just in time for an epochal shift in markets. Read our obituary of Charlie Munger here.

Then again, who’s to say what a ‘fair’ price is? While many quantitative investors regularly take a stab at this question, the manpower, time and technology afforded to the IC's stock screens acts as a hard limit on our market-wide computations. What number-crunching does allow us to do, however, is give us an indication of priciness relative to the rest of the market.

For our Have-It-All screen – now entering its 13th year – this is enough. By shooting for the moon (in the shape of cheap valuations, signs of quality and growth) the method dispenses with Munger’s wise compromise. Naturally, this leads to tensions and plenty of failures, given the habit of fast-growing, well-managed and mysteriously cheap equities to disappoint.

But then again, why shouldn’t you look for good businesses at good prices? In so far as screening can substitute for due diligence, these are reasonable items on any investors’ checklist. As the screen’s track record shows, London’s stock market regularly throws up situations where valuations and fundamentals do not match up. Last year’s cohort was no exception, with three of the seven selections producing double-digit total returns, thereby both offsetting the handful of inevitable duds and trouncing the market’s 2.8 per cent return.   

This year’s outperformance of its benchmark, the FTSE All-Share, is the screen’s eighth such success in the 12 years we have monitored it. The past year's outing also lifts the screen's total return to 169 per cent, equivalent to a compound annual growth rate of 8.5 per cent.

Although the stocks mentioned in these pages are intended as ideas for further research rather than off-the-shelf portfolios, if we factor in a 1 per cent annual charge to reflect real-world dealing costs, the total return falls to 138 per cent, compared with 123 per cent from the All-Share. Staying invested has been worth it, although several years of setbacks and volatility means the screen has failed to live up to its early promise. 

The screen’s full criteria are as follows:

This year, no FTSE All-Share constituent passed every test. As with 2021 and 2022, I have admitted stocks that fail two of the tests, so long as at least one of them is a valuation test. However, in a bid to increase the list of passing stocks (and throw in some shares that look particularly undervalued relative to their growth prospects or asset bases), I have included a further four stocks that fail three tests, so long as at least one concerns value.

Details of all the stocks that met the diluted tests can be found in the table below, along with details on the tests they failed. Of the nine, a full third – banks OSB (OSB) and TBC (TBCG), along with fellow financial services outfit Record (REC) – are high-yielding returnees from the class of 2022, although of the three only Georgian lender TBC posted a positive return over the past year. A downloadable spreadsheet is also available in the online version of this article.