Summary
- Shares have yet to really rally with the market over the past few days.
- We see a swing play opportunity.
- A long-term hold does not interest us due to poor free cash flow trends and a lofty valuation.
- This idea was discussed in more depth with members of my private investing community, Elevation Code. Get started today »
After a bull run of more than 10 years, many stocks have very attractive long-term financials. Value investing over the past decade, for example, for the most part, has not been needed. Why? Because as there have not been any significant economic downturns over the past decade, many companies have been able to grow earnings through debt instead of equity. This is something Wall Street turns a blind eye to also. Earnings rule the day on the street irrespective of whether those earnings have grown from debt or equity. If a company can turn debt into profit at a faster clip than it has to pay the interest back, then one could say it makes sense to borrow aggressively in a roaring bull market.
One company that has very impressive financials over the past decade, for example, is Aqua America, Inc. (WTR). The numbers impress me because they have been very stable. For example, revenues have grown by almost 3% on average over the past decade per year and earnings by almost 7%. These are not ultra-elevated numbers, but there is an element of predictability about them. Furthermore, the firm has kept the balance sheet in check, which we like.
