For investors aiming to assemble a portfolio of lasting, superior businesses, the quality investing method provides a useful framework. This approach centers on finding companies with lasting competitive strengths, reliable and profitable expansion, sound financial condition, and skilled leadership—the types of businesses an investor can confidently hold for many years. The "Caviar Cruise" stock screen puts this thinking into practice by sorting for measurable indicators that point to such quality, including solid revenue and profit expansion, high returns on invested capital, good cash flow conversion, and a reasonable debt level. A recent run of this screen has pointed out Hubbell Inc (NYSE:HUBB) as a company deserving more attention from investors focused on quality.
A Solid History of Expansion and Profitability
The Caviar Cruise screen favors companies that have shown not only expansion, but profitable expansion. The reasoning is straightforward: revenue increase holds little value if it does not result in net profits and value for shareholders. Hubbell meets these criteria clearly.
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Revenue & EBIT Expansion: Over the last five years, Hubbell has recorded a compound annual revenue growth rate (CAGR) of 6.78%, easily passing the screen's 5% minimum. More notably, its EBIT (Earnings Before Interest and Taxes) has expanded at a CAGR of 18.94%. This difference—where profit expansion greatly exceeds sales expansion—is a sign of a quality business. It implies Hubbell has pricing strength, operational effectiveness, and scale benefits, letting more of each extra dollar of sales become operating profit.
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Outstanding Return on Capital: Possibly the most important measure for a quality investor is Return on Invested Capital (ROIC), which gauges how well a company produces profits from the capital put into its operations. Hubbell performs strongly here, with an ROIC (leaving out cash, goodwill, and intangibles) of 54.91%. This very high number shows that Hubbell's leadership is very skilled at using capital to produce significant returns, a main factor in building long-term shareholder value.
Financial Stability and Cash Flow Health
Quality companies are not only profitable; they are financially secure and produce high-grade earnings. The screen assesses this through debt sustainability and profit quality measures, fields where Hubbell also shows good results.
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Reasonable Debt: Hubbell's Debt-to-Free Cash Flow ratio is 2.66. This indicates the company could pay off all its debt with under three years of its present free cash flow production. A ratio below 5 is seen as good, showing Hubbell's debt level is acceptable and does not present a major threat to its financial condition, even in a more difficult economic setting.
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High-Grade Earnings: The screen searches for companies that turn accounting profits into actual cash. Hubbell's average Profit Quality over five years is 98.96%, close to the perfect 100%. This demonstrates that nearly all of Hubbell's reported net income is becoming free cash flow, giving the company financial room to reinvest, reduce debt, return capital to shareholders, or seek strategic purchases without needing outside funding.
Fundamental Analysis Summary
An inspection of Hubbell's detailed fundamental report supports the image shown by the screen. The report gives Hubbell a total score of 6 out of 10, pointing out specific strong points in profitability, where it gets a 9. Important observations consist of:
- Profitability Leader: Hubbell's margins are some of the best in its field. Its Operating Margin of 21.06% and Return on Equity of 23.18% are better than most competitors in the Electrical Equipment sector.
- Steady Income: The company has a reliable dividend history, having paid and increased its dividend for more than ten years, with a maintainable payout ratio.
- Valuation Setting: While Hubbell's Price-to-Earnings ratio seems high in absolute terms, it is actually lower than many in its industry. The valuation score of 5 indicates a market that acknowledges its quality but may not be valuing it at a large premium compared to its sector.
Is Hubbell a "Caviar Cruise" Prospect?
Hubbell Inc, a designer and maker of essential electrical and utility products, seems to fit the ideas of quality investing as outlined by the Caviar Cruise screen. Its proven skill to expand profits quicker than sales, its outstanding returns on capital, its good balance sheet, and its excellent cash flow conversion all indicate a well-run business with competitive strengths. For an investor using a buy-and-hold plan, these are the basic characteristics that can aid the long-term growth of wealth.
It is necessary to state that the Caviar Cruise screen is a beginning for investigation, not a final buy list. The screen found Hubbell based on measurable past and financial data. A complete quality investing study would also assess non-quantitative aspects like the longevity of its competitive position in electrical and utility infrastructure, the skill of its leadership, and the long-term industry trends aiding its markets, for example grid modernization and electrification.
Interested in reviewing other companies that meet the Caviar Cruise quality screen? You can execute the screen yourself and view the complete list of present prospects here.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice, financial advice, or a recommendation to buy or sell any security. The information presented is based on data provided and should not be the sole basis for an investment decision. Investors should conduct their own thorough research and consider their individual financial circumstances before making any investment.
