How to Find Ideas based on Industry & Competitors


During the day, I am a test engineer and what I have experienced during my years of testing and engineering is that an issue is rarely isolated. A little extra digging reveals a minefield of issues.

The same goes for investing and finding ideas. Finding that first idea is tough, but once you do, a little digging often reveals a goldmine of potential investment candidates.

To find that first investment, Buffett has suggested to start with the A’s in the Edgar database. F Wall Street has also done the same thing, along with Geoff Gannon, and Value Uncovered is doing the same with the OTC exchange.

I think the furthest I’ve ever made it up to was the C’s 🙂

But the point of this article is not to go through finding that initial idea. For that, you can reference my previous how to find value stocks and ideas as well as how to find special situation stocks.

The point of this article is that once you have a stock idea, don’t let it go to waste by just stopping there and analyzing that single company. You are likely to find more if you follow the tips below (not in any particular order).

1. Visit the Company Website

You should be able to download investor presentations from most company websites. These are not recommended study material as it is always over promotional but often, there will be a discussion of the industry and the competitors.

Make notes of the industry if you are not an expert as well as the names of the competitors.

The reason that you need to go through the competitors is that for every Coca Cola there is a Pepsi. For every Michael Jordan, there is a Scotty Pippen. Good things come in two’s at least. In niche industries, there is more.

2. Find Competitors

A quick way to find competitors is to check Yahoo Finance or other relevant sites.

Smartmoney Competitor comparison

Enter the ticker and then select the compare tab.

Google Finance Competitors

Yahoo Finance Competitors

Of the main sites, these are the main three I use to look at competitors.

Already you have a good list of competitors you can benchmark against the stock that you are looking at.

3. Find Competitors Based on the Industry

You can find even more competitors based on the industry. But keep in mind that the number of quality companies will vary based on the industry.

If you are like boring industries or niche industries where there is no dominant leader, you have a very good chance of finding a handful of quality companies

A quick way is to use Reuters to look up the ticker followed by the industry.

My example of BOLT results in 78 companies within the same industry.

The reason why this is a good method is that since you are already interested or know about the particular sector, it makes it easier to go through a list of stocks opposed to if the list of companies were completely random.

Using BOLT as the example, the very first page lists the following companies.

Considering that you are even given international competitors to compare against, this method of digging will surely help you find at least another good company to watch out for.

4. Search in Reverse. Industry First, then companies.

Often, it is even better to look at industries first. Find the unloved industry and go through the list of stocks.

Reuters again makes things very easy by organizing and listing all the sectors and industries.

My interest has been in the paper packaging industry of late and so if I click on Paper Packaging followed by Company Ranking as shown above in the Reuters example, I get a list of 20 companies.

Immediately I can see that an Indian company called Paper Products has some potential. Simple key stats show a ROE of 17.3% with a dividend yield of 5.5% at a trailing PE of 7.5. Looks much cheaper than what is available on the US markets at the moment.

However, being able to purchase these companies is another matter.

Disclosure: Long BOLT.

P.S. A reader has provided another link to see which industry is most unloved. View the Market Watch Industry page.

  • Dan Mack

    Jae,

    How do you determine which industries are the “unloved”? Have you used this analysis to determine which country’s markets are unloved (i.e. Russia or Greece) to pick equities?

    Dan

  • Chris

    Keep up the great work, Jae – I believe in you.

  • Anonymous

    Dan, if you read the newspaper regularly, it is very easy to figure out what is unloved. Right now the most hated ones are Chinese Reverse Merger.
    A few months ago, it was natural gas stocks and regional banks.
    Usually 90% of them are indeed bad, but the remaining 10% can make you 10 beggers. You need to tell which one is good by your own analysis. Spreadsheets and other mechanical screeners normally do not work here.

  • @ Dan,
    Often, when you look at the industry index return from Google Finance, or some other site that has it, the unloved ones are the ones with the biggest price drop.
    Not all industries get news coverage so it’s a good idea to look through the list in the reuters site I linked to above and look for the boring industries.

    @ Chris,
    Thanks. lol

    @ Anon,
    Yes you can find them in the papers, but a lot of the time, it requires more digging than that to be ahead of the crowd.

  • Ranajit

    Jae,
    I also do the same thing often. I look at the most unloved industry and then try to dig deeper trying to find a diamond in the rough.

    I find this link helpful to find the most unloved sector (right now it’s airlines, about a year ago it was aluminum)

    http://www.marketwatch.com/tools/industry/

  • Ranajit

    Oops..sorry I meant industry and not sector..but you get the drift 🙂

  • @ Ranajit,

    Great link.
    I’ll update this post with the link so that I can use it myself for future reference.

  • Vittorio

    Interesting post.. thanks, I want to let you know that also morningstar offer the comparison here an example http://financials.morningstar.com/competitors/industry-peer.action?t=BOLT&region=USA&culture=en-US and in the end of page you can find the industry average also.

  • Mohammed Al-Alwan

    Hi Jun
    The problem is some times some companies are grouped in same industry however,when read the 10-k you find that business model is different.How to overcome this problem

  • I believe you just answered your own question. By reading the 10-K 🙂

Ready to try Old School Value?

TEST DRIVE THE DEMO TODAY
[checklist-collection]
[checklist-collection]