For investors looking to assemble a portfolio of lasting, well-managed businesses, the quality investing philosophy offers a useful framework. This method centers on finding companies with durable competitive strengths, reliable profitability, sound financial condition, and the capacity to produce high returns on capital over many years. Instead of pursuing deep discounts or speculative expansion, quality investors intend to be long-term holders of outstanding businesses. The "Caviar Cruise" stock screen is built to methodically sort for these qualities, using measurable data to point out companies deserving of more investigation. One business that recently appeared from this screen is Oshkosh Corp (NYSE:OSK).
Meeting the Core Quality Criteria
Oshkosh Corp, a designer and maker of specialized vehicles and equipment for defense, access, and vocational markets, displays a number of important traits that match the quality investing screen's filters.
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High Return on Invested Capital (ROIC): A fundamental part of the quality screen is a high return on the capital a business uses. The screen asks for a ROIC (leaving out cash, goodwill, and intangibles) over 15%. Oshkosh reports a ROICexgc of 15.34%, easily meeting this requirement. This shows management's skill in using capital to create earnings, an important signal of a lasting competitive edge and effective operations.
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Strong Profitability and Cash Flow Conversion: The screen searches for companies that not only report accounting profits but also turn them into actual cash. This is judged by the Profit Quality ratio, which weighs free cash flow against net income. Oshkosh displays a solid five-year average Profit Quality of 118.56%, well above the 75% minimum. This indicates the company produces more free cash flow than its stated net income, offering significant financial room for dividends, share repurchases, lowering debt, or internal investment.
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Prudent Financial Leverage: Quality companies handle debt carefully. The screen employs the Debt-to-Free Cash Flow ratio to measure how fast a company could clear its debts using its cash flow. A ratio under 5 is seen as strong. Oshkosh's ratio is a very good 1.93, implying it could in theory remove its debt in less than two years with its present cash flow, indicating a very firm balance sheet.
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Profitable Growth Path: The screen looks for companies where profit expansion exceeds sales expansion, pointing to better operational efficiency and possible pricing strength. While Oshkosh's 5-year revenue CAGR of 4.77% is just under the screen's 5% starting point, its 5-year EBIT (earnings before interest and taxes) CAGR is a much higher 13.44%. This difference verifies that the company has managed to expand its core operating profits at a pace almost three times its sales growth, a sign of rising profitability.
Fundamental Analysis Overview
A wider view of Oshkosh's fundamentals gives background for these screen outcomes. Based on its detailed fundamental analysis report, the company gets a neutral total rating of 5 out of 10. The analysis notes several favorable points together with some areas of average performance:
- Profitability & Margins: Oshkosh's profitability measures are mostly seen as neutral to good. Its Return on Equity (14.28%) and Return on Invested Capital (9.82%) are better than most of its machinery industry competitors. Importantly, both its Operating and Profit Margins have shown good expansion in recent years.
- Financial Health: The company's financial condition is a relative positive. The analysis particularly notes its very good Debt-to-FCF ratio and sound Debt-to-Equity ratio (0.24), supporting the screen's conclusion of a firm balance sheet.
- Valuation & Dividend: Oshkosh seems fairly priced, with a P/E ratio of 15.99 that is lower than most industry competitors and the wider S&P 500. Its dividend characteristics are seen as a positive, with a dependable and increasing history of more than ten years and a maintainable payout ratio.
- Growth Considerations: The primary areas of average performance relate to growth. While past EPS and revenue expansion have been good over several years, both measures experienced a small decline over the past year. Projections for future revenue expansion are also conservative.
Is Oshkosh a Quality Fit?
For an investor using the Caviar Cruise method, Oshkosh Corp makes a strong argument. It meets the screen's strictest checks for capital use (high ROIC), financial strength (low debt load), and cash production (superior profit quality). Its skill in growing earnings much quicker than revenue highlights operational skill. While its recent sales path and industry-relative growth projections may cause pure growth investors to hesitate, the quality method frequently values steadiness, profitability, and financial durability over pure sales increases. Oshkosh's fair valuation and appealing dividend also increase its attractiveness for a long-term, quality-focused portfolio.
Interested in examining other companies that meet the Caviar Cruise quality screen? You can see and adjust the screen yourself here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
