The points here are summarised from an interview with Fritz Reynolds (Reynolds Funds) conducted by Kirk Kazanjian in his book Wizards of Wall Street.
- Look for companies with above-average growth characteristics, strong unit growth (>= 13%), are well managed, and enjoy good pricing power.
- Often that might be the number one or two company in the industry. It could also be economies of scale or worldwide growth.
- Many times it’s a very profitable company with high return on equity.
- It has balance sheet that’s strong, maybe no more than 30% debt.
- Use the PEG ratio (P/E divided by growth rate) as a valuation yardstick. If PEG is 1.25, and interest rates are very high, stocks are a good value. When interest rates are near a 30-year low, the average PEG is 1.5 to 2 for many of the companies ,and they are good values.