Conventional wisdom tells us that because of the relative higher growth and risk and possibility as an M&A target, the average long term return on small and mid cap indices are usually higher than their large cap counterpart.
A quick scan reveals four intriguing names that I like to look deeper into. They reside in the mid and small cap space. They are CBOE Holdings(股票代號: CBOE), Intuitive Surgical(股票代號: ISRG), Paychex(股票代號: PAYX), and Rollins(股票代號: ROL). This is just a starting point.
CBOE stands for Chicago Board Options Exchange, where it clears and handles the lion share of U.S. options trading. It also is the owner of such products as the VIX and SPX. ISRG stands for Intuitive Surgical, where its line of Da Vinci Surgical Robotics help surgeons and offer patients the option and ease of minimally invasive surgeries. PAYX stands for paychex, Inc. It provides small to medium size firms services such as payroll processing, human resources, and benefit administration. ROL stands for Rollins Inc. It is the parent company of the famous pest control firm, Orkins, and many others.
None of these stocks are on sale right now, but there is one thing that they all have in common that caught my attention. All of them have no debt. Not having debt in your capital structure is not necessary a good thing, but what set these four companies apart is their ability to earn a “high return on equity without the use of any debt!” Now that is impressive. Perhaps we shall in the future visit and explore the subject of the Du Pont formula.
The ability to earn high return consistently is no easy fluke. Each of these businesses probably has something that distinguishes itself from competition, whether it be a great brandname recognition in Orkins, a great proprietary technology and patterns in the Da Vinci’s, a great help to small businesses in Paychex with high barrier of entry, or simply popular trading tools like the SPX and VIX, they are all necessities in some form or another to the growing clientele that they serve. Cyclical or Secular, a great business that consistently earns a great return selling at a sensible price most certainly deserves a place in a long term investor’s portfolio in almost any economic cycle. Keep these names on your watchlist, as more due diligence research and investigation is needed before any of us pull the trigger.