This article is from WeChat official account:Damask (ID: jinduan006), author: old man, original title: “The Secrets Shared by the 423 Highest Quality Listed Companies in A Shares”, the head picture comes from: Visual China
Whether it is the freshly baked Xiao Mengxin, or the old leek that has been scarred, each of us initially rushed into the A-share market with a more or less rich mentality. Except for the “one” in “one earns, two draws and seven losses”, most of us can only comfort ourselves and stocks, just like playing games, shopping, dancing, traveling, staying up late to watch dramas, and playing vibrato. It is essentially a consumption, or entertainment.
Recall, everyone, how was the first stock we sold?
The answers are varied, but there are just so few, “That stock is very hot now, I will buy some” “My friend has news, tell me to buy this” “This company heard that it will be reorganized” “The technical aspects of this stock Not bad” “I have a brother in this company, now the company is too busy with orders”…
Not many people have actually read the company’s financial statements, and few people have ever understood the company’s profitability. In other words, at the beginning, our stock selection was random. If a good start is half the battle, for us ordinary people, we have already lost at the beginning.
The most common marketing phrase used by greasy bank lobby managers who tell you “you don’t manage money, you don’t care about your money” is “good investment is three good, good industry, good company, and good price”. Today, we do not consider the industry and price (time). First of all, we will make up the first lesson, how to find a good company on the market.
The U.S. stock market has a history of two hundred years. There is a proverb called “Don’t Reinvent the Wheel”. We don’t need to invent the wheel again.
Buffett once said, “If I had to choose an indicator for stock selection, I would choose ROE(return on equity)< /span>. Those ROEs can perenniallyCompanies that continue to stabilize at more than 20% are good companies, and investors should consider buying. “
From the perspective of ROE, we will analyze how to find good companies in the market and understand the secrets behind the high ROE of these good companies.
1. ROE and DuPont formula
The so-called ROE is the abbreviation of “Return on Equity” in English, which translates to return on equity, which is the ratio of the company’s net profit to shareholders’ equity, reflecting the income of shareholders’ equity Level.
Using DuPont’s formula to dismantle ROE is the basic knowledge framework of economics and management disciplines. You can find a financial textbook or Baidu, and you can find a very complete explanation. Here we will not be long-winded. Let’s briefly add three key points:
First, the caliber of net profit. The DuPont formula analyzes the whole of an enterprise, using the total net profit caliber, but the stock market invests in the equity of the parent company of the listed company, so we should use the “attributable to the parent company” in the income statement. The “owner’s net profit” item differs from the net profit by a “minority shareholder profit and loss” item. Considering that most of the minority shareholders’ equity of listed companies is 0, here, we will simplify it and directly use the total net profit. One item.
Second, in theory, the greater the market value, the greater the impact of ROE. For companies with small A-share market value, due to the existence of shell stock value, game value, etc., the actual market value deviates greatly from ROE. However, as the market value of the company becomes larger and larger, the impact of ROE will become more and more obvious. When the market value of an enterprise reaches 100 billion yuan, the valuation level of the enterprise will be completely determined by the ROE.
Third, as the scale of net assets increases, ROE will gradually decline. When corporate equity continues to increase, affected by diminishing marginal returns, the overall ROE level will drop to a certain extent.
II. The overall ROE situation of A shares
By the end of April, the 2020 annual reports of A-share listed companies have all been announced, and we are excluding banks and some non-bank financial companies(mainly brokers)< After /span>, take the annual report data of the remaining 4161 listed companies as an example to analyze the overall ROE situation of A shares.
1. Overall ROE distribution
The median ROE of these 4161 listed companies is 7.72%, and it is mainly concentrated in the range of 0-15%. Listed companies in this range account for about two-thirds of all listed companies.
From the perspective of kurtosis, compared with the ordinary normal distribution, the distribution of A-share ROE is more concentrated in the region, and at the same time there are more extreme values. The skewness is negative, which means left-bias, that is, there are more extreme values at the left end and a longer tail. From a practical point of view, 13.82% of listed companies have a negative ROE in 2020, that is, they are losing money that year.
2. The overall distribution of DuPont’s three factors
According to the DuPont formula, we split ROE into equity multiplier, total asset turnover rate and net sales margin. The overall distribution is shown in the table above. For these 4161 listed companies, the median equity multiplier is 1.73, the total asset turnover ratio is 0.53, and the net sales margin is 7.85%. The median of ROE is very close to the median of net sales margin.
3. Splitting of DuPont’s Three Factors
In order to better analyze the joint distribution of the three factors, we divide each factor of the three factors into five intervals, one interval for every 20%, and the five intervals are according to high, medium high, medium, medium low, and low Five tiers are distinguished, that is, the top 20% of the index is high, the middle-high is the top 20%-40%, the middle-high is the top 40%-60%, the middle-low is the top 60%-80%, and the low is the last 20%. .
The three indicators have five levels for each indicator, and there are a total of 5*5*5=125 possibilities. It can be understood as loading the DuPont three-factor data of 4161 listed companies into 125 drawers. In theory, each drawer will have an average of 33(4161/125≈33) A listed company.
The picture above is the specific DuPont three-factor distribution of 4161 listed companies. We use the color scale format in Excel to distinguish the value of each drawer from the average value. The lighter the color, the closer to the average 33, the blue represents less than the average, the darker the blue represents the lower the value, and the red represents Above the average, the darker the red, the higher the value.
Looking at this color scale diagram as a whole, we can find such a rule, that is, the closer to the middle, the lower left corner, and the upper right corner, the more red color, and the farther away the upper left corner is, the lower right corner is blue. The more, the deeper. This shows that there is a certain negative correlation between the A-share equity multiplier and the net sales margin. That is to say, a company with a higher net sales margin usually has a lower leverage ratio.
We know that there are a total of three two-by-two correlations among the three factors. The remaining two relationships, the equity multiplier and the total asset turnover, the total asset turnover and the net sales interest rate, are there rules?
Here we have listed the other two combinations. As shown in the figure above, we can see that there is no obvious rule in the overall color scale.
3. The situation of listed companies with high ROE
From the above data, we know that the median ROE of all A-share listed companies in 2020 is only 7.72%. If a listed company’s ROE exceeds 15%, it will enter the top 20%. According to Buffett’s 20% ROE stock selection criteria, a total of 423 listed companies with A shares have ROEs of more than 20%, accounting for just over 10% of all A shares.
1. Overall situation of listed companies with high ROE
The figure above is the DuPont three-factor distribution of 423 listed companies with ROE over 20%. We can find that for these high ROE listed companies, the distribution of total asset turnover and net sales margin is close, and the indicator values are concentrated in The two ranges of high and medium-high of all A shares are included, and the distribution of equity multipliers in the five ranges is very close, and there is no obvious difference.
This shows that listed companies with a ROE of more than 20% have two characteristics. One is that their asset turnover and net sales interest rate are better than the normal level of all A shares, and the other is that the equity multiplier does not show any difference. The overall difference in A shares is relatively large.
According to this characteristic, the core of a high ROE company is not leverage, but management capabilities, that is, asset turnover rate and net sales interest rate.
2. The specific distribution of high ROE listed companies
According to the conclusions drawn above, high ROE companies do not show obvious characteristics in terms of equity multiplier, or it is a neutral indicator. We specifically targetThe 423 companies’ total asset turnover rate and net sales margin are two indicators for analysis.
From the above figure, we can find that listed companies with high ROE are highly concentrated in the upper left corner, which is the high range of total asset turnover and net sales interest rate. From the actual distribution point of view, if a listed company wants to achieve a higher ROE, at least one of the two indicators of net sales interest rate and total asset turnover must enter the high range.
Here, we have to distinguish two very important concepts, namely frequency and probability. Let’s take a simple example, the famous places of beauty in China, Sanlitun in Beijing and Jiefangbei in Chongqing. We said that it is easier to see beautiful women in these places. So, how do you use mathematics to express the sentence of beautiful women more easily? Do you see more beautiful women per unit of time, or is it easier to see beautiful women among a group of women? The former is the concept of frequency, and the latter is the concept of probability.
For the question of frequency, if you see more women in a period of time, the more beautiful women you may see. With regard to the concept of probability, if you go to the backstage of the Spring Festival Gala and see a woman casually may be a beautiful woman, the probability is higher. What’s the best thing about seeing beautiful women more easily? I have seen many women in a period of time, and the probability of being beautiful among women is also very high.
Going back to our stock selection problem, among the 423 companies with high ROE, 78 companies have high net sales margins, 87 companies have high net sales margins, and 56 companies have high net sales margins. The total asset turnover rate is high in the net sales margin. These three types are of high frequency. We want to know the overall distribution of all A shares, and we want to know the probability of high ROE when these three types appear. In essence, this is a Bayesian problem (see:“Leek Cut Prevention Handbook: Investing but not understanding Bayesian, buying all A shares is also in vain”).
As shown in the figure above, we have calculated the probability of ROE exceeding 20% in each interval. It can be found that when a listed company’s total asset turnover rate and sales net interest rate are both high, the probability of a listed company’s ROE exceeding 20% is close to 100%, followed by the high total asset turnover rate in the high net sales interest rate, 72%, and high assets. The probability of the high sales net profit margin in the turnover rate is down, only 53%, which is a little more than half, and the probability of other types is not more than one-third.
This points out the direction for us to find excellent companies with high ROE. High net sales margin and high asset turnover rate are at least one of them. Net sales margin is more important than total asset turnover rate because of high assets. The winning rate of the combination of high net sales margin in the turnover rate is lower than that of the high total asset turnover rate in the high net sales margin.
3. Features of high winning rate areas
There are 78 listed companies with high net sales margin and total asset turnover, and ROE over 20%. This number is too much. If we want to analyze further, we need to add back the factor of equity multiplier. In order to discover more useful elements.
We have synthesized the frequency and the probability of occurrence, and obtained 8 situations that are useful for stock selection, as shown in the following table:
From the above table, we can find that when we add the equity multiplier, there is aThese industry characteristics have emerged.
First, generally speaking, the appearance rate of pharmaceutical companies is relatively high, and pharmaceutical companies appear in basically various situations.
Second, because of industry characteristics, the pharmaceutical industry is indeed easier to achieve high net sales margins. Compared with chemical companies, assets are lighter, so the total asset turnover index is better. For example, Hengrui Medicine, Wantai Biotech, Zhifei Biotech, Jinyu Medical, BGI and so on.
Thirdly, it is difficult for manufacturing companies to achieve high net sales margins. The way to achieve high ROE is often through high asset turnover rates, such as Sany Heavy Industries. Any manufacturing company that can achieve high net profit margins is worth a look, such as Hengli Hydraulics, Eddie Precision, Hikvision, Inovance Technology, and CNC.
Fourth, Building materials companies can also achieve high net sales margins and high total asset turnover rates, such as Conch Cement and Weixing New Materials. In our impression, building materials companies usually contact real estate At the same time, it is a cyclical company, but so many companies can achieve such a high ROE is indeed beyond our imagination.
Fifth, In the manufacturing industry, the equity multiplier in the home appliance industry is generally relatively high, such as Midea Group, XGIMI Technology, and another major leader Gree Electric Appliances, which have been relatively high for many years. .
4. How to choose an industry
We often say that we should fish where there are fish. Although in the long run, the rate of return on capital will tend to converge, but in the long run, we will all die and we still have to live in the present. Some race tracks, some industries, it is indeed easier to produce companies with high ROE.
Among all 4161 listed companies, there are 423 outstanding companies with a ROE of more than 20%, with a probability of 10%. From the above table, we can find the following industry characteristics:
Part1. In terms of industry, the food and beverage industry has the highest probability of high ROE, 25%, and 1 of 4 companies can do it.
Second, what is more surprising is building materials, agriculture, forestry, animal husbandry and fishery, and steel. The probability of these three cyclical industries far exceeds the market average. Among them, building materials have high ROE The probability is second only to food and beverage.
Third, Textile and Apparel is an industry that has basically been abandoned by public offerings and researchers have switched careers. Although the main textile and apparel leaders are in Hong Kong stocks, the probability of high ROE is also very high.
Fourth, Biopharmaceuticals has always been stable. There are 61 high ROE companies in total. On average, one of the 6 pharmaceutical biotech companies has an ROE of more than 20%.
Fifth, relatively speaking, the current institution’s favorite electronic and electrical equipment, the probability of high ROE appearing is average, only slightly higher than the market average.
Sixth, The industries where there are more high ROE companies include medical biology, electronics, mechanical equipment, chemical industry, food and beverage, and electrical equipment. These six industry pools are large enough.(The number of listed companies is large), the probability of high ROE is not low, and you can discover bull stocks in these six industries. Especially in the mechanical equipment and chemical industries, the overall market attention is not high, but the number of listed companies is large, and the East is not bright, and the West is bright. There are opportunities every year, and the research cost is relatively high.
Seventh, commercial trade, leisure services, transportation, non-ferrous metals, mining and communications, the probability of high ROE companies appearing is not high, especially communications, which belong to the TMT industry. , The performance is very general. On the whole, the performance of the computer industry is not very good. The typical name is not what it is, and the long-term performance is generally reasonable.
Four. Our conclusion
For stock selection through high ROE, we have summarized the following seven key points:
First, for A-share listed companies, there is a negative correlation between the net sales margin and the equity multiplier. That is, the higher the net sales margin, the lower the equity multiplier.
Second, just like gambling can never make you a fortune, high ROE companies rely not on leverage, but on management capabilities.
Third, If a listed company wants to achieve a ROE higher than 20%, then at least one of the two indicators of net sales margin and total asset turnover must be in the top 20%. According to the data of the 2020 annual report, the net sales margin is greater than 17.43%, or the total asset turnover rate is greater than 0.83, each of which is difficult to achieve.
Fourth, from the perspective of industry characteristics, pharmaceutical companies are generally easier to achieve high net sales margins. In addition, due to their lighter assets, the total asset turnover index is also easy to look good.
Fifth, For manufacturing companies,The main way to achieve high ROE is to achieve high total asset turnover rate, but for those who can achieve high net sales Interest-rate manufacturing listed companies should pay more attention to it.
Sixth, the number of listed companies is large enough, and the probability of high ROE is not low. There are mainly six industries of medicine and biology, electronics, mechanical equipment, chemical industry, food and beverage, and electrical equipment. The overall research on the industry has a relatively high cost performance.
Seventh, The overall research on communications and computers in the TMT industry is not cost-effective.
Although we have summarized the characteristics of many high-ROE companies, how to choose the real bull stocks and finally make money at the time depends on everyone to get off the court, collect data, and run it personally.
There is a sentence in the “Diamond Sutra”, “Everything that works is like a dreamy bubble, like a dew or electricity, and should be viewed in the same way.” Many people understand this sentence as everything is emptiness and illusion. Most people’s understanding of the Diamond Sutra is to let go of their desires, reduce their desires, and then seek peace and worry-free.
But in fact, the “Diamond Sutra” expresses a positive worldview. The true understanding of the above sentence is: “Any way and method that can be expressed is not an eternal method, just like dew and lightning. , Will be shattered at any time.” All the investment ideas and routines of others are illusory and not yours. The real solution to the problem is, Seeking inward, cultivating outward, thinking and practicing by yourself, you need to grasp the essence and laws of the stock market by yourself, and no one can replace you.
This article is from the WeChat official account:Damask (ID: jinduan006), author: old man