Coffee Can Stocks (Non-Banking)

This scanner gives you a list of Indian stocks based on the Coffee Can investing strategy. The phrase and concept ‘Coffee Can’ came from the Old West, from the early 19th century, when people would put their valuables like money and jewelry in a coffee can and keep it under the mattress for safekeeping.

Robert G. Kirby, one of the most successful American fund managers, popularized this strategy. The way Kirby developed this strategy is also enjoyable. When one of his clients died, Kirby accidentally came across the coffee can concept. He analyzed the deceased client’s investment portfolio and discovered that his client had been ignoring sell recommendations given by his firm for many years. The client had been putting away the share certificates in a box and had forgotten entirely about them. Interestingly, the client’s accidental patience helped his portfolio build a massive fortune over time.

Let’s learn a little about this investing strategy.

According to Robert G Kirby, there are some key areas to consider when searching for companies:

Market Capitalization

The strategy stresses companies with enough market capitalization to be fundamentally strong and stable. For Indian companies, we’ll take the minimum market capitalization of ₹10,000 crores. Data reliability on companies smaller than this size is somewhat susceptible, making them riskier.

Revenue Growth

This refers to the increase in sales of a product or service over time. Consistent sales growth suggests a healthy business trajectory, attracting investors seeking long-term returns and validating the company’s potential for future success. In this scanner, we have used a minimum revenue growth of 10% year-on-year (YoY), as Mr. Kirby prefers.

Return on Capital Employed (ROCE)

This financial ratio assesses a company’s profitability and capital efficiency. It indicates how effectively a company generates profits from its capital. A higher ROCE suggests better utilization of capital in generating profits. In this scanner, we filtered stocks with an ROCE of 15% for 10 years.

Debt to Equity Ratio

The debt-to-equity ratio measures a company’s financial leverage by comparing its total liabilities to shareholder equity. It indicates the proportion of debt used to finance the company’s assets. A high ratio suggests higher risk due to potential repayment issues, while a low ratio indicates financial stability and less risk. In this scanner, we filtered out companies whose debt-to-equity ratio is less than 0.5.

Net Profit Margin

This ratio measures the percentage of revenue that remains as profit after all expenses are deducted. It is calculated as (Net Profit / Revenue) * 100. Net profit margin helps us assess a company’s profitability, efficiency in cost management, and overall financial health, thereby helping us forecast potential returns on investment. In this scanner, we have filtered out companies with net profit margins greater than 10%.

Other than these factors, Mr. Robert Kirby’s preferred companies:

• That specialize in a particular niche and control a large part of the market, especially those reflecting a ‘MOAT.’
• Whose products are always in demand and represent an evergreen industry.

Using the above filters for the scanner, we have obtained a list of companies that are growing consistently and have cleared Mr. Kirby’s stock selection process.