The Urban Stack
In my last worldview – Investing in Urbanization – I came up with a list of companies that might be worth a look. As a recap, these were the types of companies I was looking for:
- Construction Equipment manufacturers
- Truck manufacturers
- Van manufacturers
- Electrical Grid experts
- Train manufacturers
But since the stack was sort of long, I needed to apply my first-date screener in the hope that I’m left with one or two on which I can focus. As a recap, I look for 3 things in my first-date screener:
- Does the company generate cash flow? I measure this by Free Cash Flow.
- Is it a high Return on Equity company – that’s another way of saying:
- Is it a financially productive company? Meaning…
- Does Management do a good job of allocating shareholder capital?
- Does the company have too much debt? If it does, it means the ROE number in inflated, and cash interest charges may eat into Free Cash Flow.
In this case, while looking at my “urbanization stack”, I added another criterion:
- Does it have considerable emerging market exposure? That’s where most of the urban migration will happen.