Watchlist review

I wasn’t going to say much about my watchlist to maintain a bit of mystery and so my hordes of followers didn’t inflate the prices of the stocks I on the list before I bought them. But thinking about it the one reader who seems to be following my blog at the moment is from China and may not even speak good English let alone have enough money at hand to invest in the UK stock market to do this.

Developing and maintaining a watchlist of the best possible shares on the UK market is a key part of my process so here’s how I go about it and what’s on the list.

Identifying shares

The main way I identify shares is using a small number of simple screens. I use Stockopedia to run these screens as I find Stockopedia easy to use and perfectly adequate for my relatively simple needs. It also has ‘Stockranks’ which can be a useful screening input. My screens are based on a small number of quantitative quality factors: long term ROCE, FCF growth rate, long term momentum, net cash/debt position and operating margin.

Before adding any shares I like to the watchlist I will then do a high level qualitative assessment, basically trying to look into the business’s future. I try to understand what the business does and whether it has a competitive advantage in a growing defensive market and whether there are any big risks the screens might be missing  e.g. competitive or technological threats, falling demand, regulatory threats etc. This is the tricky part that involves careful judgment and seems more of an art than a science to me at the moment. Fundamentally what I’m looking for is certainty of long term compound growth. I’ll think about this again before I actually add a share to the portfolio.

For a small number of shares I follow this process the other way round i.e. I find a business I like the sound of qualitatively and then I check the numbers in more detail. This can pick up other shares that would have failed screening for various reasons (e.g. recent merger or IPO) but that I believe are high quality nonetheless.

My current watchlist

In order of market cap:

  1. Diageo
  2. Reckitt Benckiser
  3. Shire
  4. Imperial Brands
  5. Relx
  6. ITV
  7. Intercontinental Hotels
  8. Paddy Power Betfair
  9. Burberry
  10. Sage
  11. Hargreaves Lansdown
  12. DCC
  13. ASOS
  14. Rightmove
  15. Aberdeen Asset Management
  16. JD Sports Fashion
  17. Spirax-Sarco Engineering
  18. Howden Joinery
  19. Renishaw
  21. Cineworld
  22. Victrex
  23. ZPG
  24. Aveva
  25. James Halstead
  26. Dart
  27. RWS
  28. CLS Holdings
  29. Nichols
  30. EMIS
  31. Gamma Communications
  32. Biotech Growth Trust
  33. FW Thorpe
  34. Avon Rubber
  35. Keywords Studios
  36. MJ Gleeson
  37. dotDigital
  38. Treatt
  39. Character
  40. Portmeiron
  41. Judges Scientific
  42. Adept Telecom
  43. Animalcare

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