Bill Cara

Updated notes to the Cara 100 (January 1, 2023)

December 12, 2022

Notes Based on Financial Statement Analysis of Cara 100 Companies

To help investors select a relatively small group of high-quality companies to study, I created the Cara 100 list. The components usually, but not always, are industry leaders in corporate fundamentals like balance sheet strength and operating performance like cash flow, margins, earnings, and possibly dividends.

That is true with the caveat that nothing’s perfect.

After publishing the list for January 1, 2023, I spent more time examining the financial statements of most of these companies.

There were 21, mostly oilers and miners, which I feel are generally financially sound (i.e., none were negative).

There were an additional 49 that I think have unquestionably good fundamentals.

Of these, 17 were super strong (ACLS, ANET, ATVI, CINF, CRSP, EOG, EPAM, EPD, EXEL, FDMT, GDEN, KNSL, NVDA, ON, RS, VIR,VRTX), and the following 32 were strong (AMAT,AMPH,AMZN,AVGO,CHE,COP,COST,CVX,DAR,EDIT,FANG,FIVE,FSS,FTNT,LEVI,LUV,MCRI,MNRL,MPC,MRTN,MRTX,MTDR,RIOT,SAMG,SEDG,TFX,TSCO,UEC,ULTA,V,VNOM, VSTO).

There are two (AAPL,MA) that are probably strong, but this could change.

I am neutral on five of the 100 (ADM,HES,MRO,MTZ,SRPT).

That is 77 to this point. Not to worry. In my view, all the remaining 23 are good quality companies; however, because I must consider the possibility of a severe recession and even depression, which could materially impact the future financial soundness of companies, I need to list the possibilities.

Five (AL,CRM,DDOG,VRNT,VLO) are marginally negative.

There are fourteen (ALK,AMRC,DELL,DIS,GH,IRDM,IRM,LNG,OVV,OXY,PDCE,PZZA,RTX,SGH) whose financial soundness needs to be upgraded by management but would be fine in a mild recession.

The four (BKR,KBR,NOG,SNEX) that concern me a bit are probably okay in a mild recession; the possibility of a hard-landing scenario, however, makes me wonder why I selected them.

Baker Hughes(BKR) was added to the Nasdaq-100 index today. It’s always been a favorite of mine because it has diversified oilfield services & equipment and industrial technology groups. If the GOP House gives the industry a break, this company is not one to worry about.

KBR, Inc (KBR) provides so many different types of scientific, engineering, and military-related services to several governments that it’s hard for me to be negative at all. The analysts love this company. All of them rate it a Buy. But the price has slid in the past nine months, and the Price Targets haven’t. That, plus the pretty weak financials, should concern the risk-averse investor.

Northern Oil & Gas (NOG) is an oiler most analysts like, and most recently lifted their Price Targets. Raymond James even rates the company stock a Strong Buy. I might be a bit concerned about the financial strength in a severe industry downturn, so consider this a heads-up to a company I like.

StoneX Group (SNEX) is a relatively small ($1.9 Billion market cap) financial services company that I think does some exceptional work. But with a lot of debt and narrow margins, its financial statements are not vital. In a market downturn, what has been an impressive bullish run for the stock for eight years, especially for the past 30 months or so, could turn unpleasant. But December has been a downer. So, this is one I will keep in the Cara 100, but I’d wait until the broad market Bear has completed its cycle bottom before giving any consideration to investing.