Our investment process

Only a fraction of ASX and U.S. listed stocks meet our investment criteria. Here’s how we find them.

ASX

Only a fraction of ASX and U.S. listed stocks meet our investment criteria. Here’s how we find them.

We invest in the numbers

As Tim Lincoln says, “if you don’t understand the true fundamental quality and financial health of a business, then you are purely speculating and seriously risking financial loss.” Our proprietary research methodology analyses the financial statements of every company on the Australian and U.S. stock exchanges mostly within 24 hours of the results being released. These statements aren’t opinion or hype: they’re facts. Facts that allow us to quickly screen over 2,000 Australian stocks to a more manageable universe for qualitative assessment and narrow the universe of U.S. stocks with a market cap in excess of $1b to 50-70 stocks for investment consideration. The benefit of this process is to ensure efficiency, objectivity and accountability in our stock selection process.

Step 1

Determine
financial health

We use a company’s financial reports to analyse the numbers of their business and their financial health – this takes place every 3 months for U.S. stocks and every 6 months for Australian stocks. It allows us to rule out around three-quarters of the market, so we can focus on the financially healthy stocks. It is here we find the best of the blue chips as well as the small-to-mid caps that others miss.

Financially healthy stocks
History of profitability
Manageable debt
Consistent cashflow

75% of the market ruled out
Step 2

Assess performance for specific growth or income factors

It’s not enough for a healthy company to simply grow or provide strong dividends. Its numbers must show it can do it efficiently, with good margins, strong growth metrics and/or sustainable dividends over time.

Consistent growth metrics, solid margins, and/or sustainable dividends

Reduced to around 200 companies
Step 3

Final
analysis

Quantitative analysis of past performance and financial health does an excellent job at reducing our focus from over 2,000 stocks listed on the Australian stock exchange, down to the 200 or so that have exceptional financials. From there our team of analysts apply a final set of qualitative overlays to complete our assessment. The team looks at everything from the competitive landscape, experience of senior leaders, short-selling trends to Director remuneration and ‘skin in the game.’

Our Financial Health Model has a 94%+ success rate in helping clients avoid corporate failures in both Australia and the U.S.

5% of stocks on the ASX

The Star Stocks of the ASX and U.S.

The stocks we select for our Stock Doctor members and construct our Managed Funds from are made up exclusively of our Star Stocks. Stock Doctor Star Stocks are the healthiest blue chips and the most dynamic of small caps, often flying under the radar, yet to be discovered by most market participants. Exclusive to members and investors, Stock Doctor Star Stocks have been delivering strong returns since 1996.

Blue chips we found as small chips

Sometimes the best investments are hard to find amongst all the hype and opinion. But not when you invest in the numbers. We've uncovered plenty of amazing opportunities years before the rest of the market finds them.
  • 1 Cochlear Limited (COH)
  • 2 CSL Limited (CSL)
  • 3 REA Group Ltd (REA)
  • 4 Pro Medicus Limited (PME)

Cochlear Limited (COH)^

Based in Sydney, COH, a manufacturer of the nucleus Cochlear implant, was formed in 1981 with finance from the Australian government to commercialise the implants pioneered by Dr Graeme Clark in Melbourne during the 1970s. We first flagged COH as a Star Growth Stock in 1997 based on its financial quality when its shares were largely undiscovered at only $4.80. Today, the company holds over two-thirds of the worldwide hearing implant market. COH was listed as one of the world’s most innovative companies by Forbes in 2011.

CSL Limited (CSL) ^

CSL began life as a government enterprise charged with safeguarding the health of Australians fighting in World War I and was among the first to offer drugs such as insulin and penicillin to civilian citizens. The company was listed on the ASX in 1994 and came to our attention as a Star Growth Stock in 1996 at $1.88. Through various acquisitions and constant innovation, the company has grown to become a global leader specialising in blood plasma products and flu vaccines.

REA Group Ltd (REA)^

REA’s strong quantitative metrics led to its introduction as a Star Growth Stock in 2005 at $2.27. The company is now Australia’s number one property classifieds business with realestate.com.au having an average ~3x times more site visits compared to its nearest competitor, Domain. This market position allows it to generate strong profit margins and pricing power. Growth is expected to continue with REA expanding its operations internationally into multiple geographies across Asia and North America.

Pro Medicus Limited (PME)^

PME listed on the ASX in 2000 and provided clinical record-keeping software to the medical fraternity. The company experienced a step-change in growth when it acquired the medical imaging software Visage in 2009. From humble beginnings, PME has since transformed into one of the leading healthcare imaging providers in North America, Europe and Australia. We initially identified PME as a Star Stock back in 2006 at $1.55.

1 Cochlear Limited (COH)

^
Based in Sydney, COH, a manufacturer of the nucleus Cochlear implant, was formed in 1981 with finance from the Australian government to commercialise the implants pioneered by Dr Graeme Clark in Melbourne during the 1970s. We first flagged COH as a Star Growth Stock in 1997 based on its financial quality when its shares were largely undiscovered at only $4.80. Today, the company holds over two-thirds of the worldwide hearing implant market. COH was listed as one of the world’s most innovative companies by Forbes in 2011.

2 CSL Limited (CSL)

^
CSL began life as a government enterprise charged with safeguarding the health of Australians fighting in World War I and was among the first to offer drugs such as insulin and penicillin to civilian citizens. The company was listed on the ASX in 1994 and came to our attention as a Star Growth Stock in 1996 at $1.88. Through various acquisitions and constant innovation, the company has grown to become a global leader specialising in blood plasma products and flu vaccines.

3 REA Group Ltd (REA)

^
REA’s strong quantitative metrics led to its introduction as a Star Growth Stock in 2005 at $2.27. The company is now Australia’s number one property classifieds business with realestate.com.au having an average ~3x times more site visits compared to its nearest competitor, Domain. This market position allows it to generate strong profit margins and pricing power. Growth is expected to continue with REA expanding its operations internationally into multiple geographies across Asia and North America.

4 Pro Medicus Limited (PME)

^
PME listed on the ASX in 2000 and provided clinical record-keeping software to the medical fraternity. The company experienced a step-change in growth when it acquired the medical imaging software Visage in 2009. From humble beginnings, PME has since transformed into one of the leading healthcare imaging providers in North America, Europe and Australia. We initially identified PME as a Star Stock back in 2006 at $1.55.
Past performance is not a reliable indicator of future performance. Lincoln, Lincoln Financial Group Pty Ltd and directors, employees and/or associates of these entities may hold interests in these ASX-listed companies. Further information about particular stocks held by these entities from time to time is disclosed within the Stock Doctor program and may change at any time without notice.

Corporate failures we avoided

Since we first opened our doors, there have been hundreds of corporate failures our members have managed to avoid thanks to our proprietary methodology.
  • 1 Virgin Australia Holding (VAH)
  • 2 Dick Smith Holdings Limited (DSH)
  • 3 Babcock & Brown Limited (BNB)
  • 4 One.Tel Limited (ONE)
Download full list of failures

Virgin Australia Holding (VAH)

Failed 2020
Virgin Australia commenced operations in August 2000 as Virgin Blue with two aircrafts on single route before finding itself as a major airline following the collapse of Ansett Australia in September 2001. In 2011, the company underwent a massive transformation, introducing new aircraft, uniforms, and even a business class. However, significant debt arose from this transformation and coupled with highly unstable profits, led to its marginal Financial Health rating as far back as February 2013. The emergence of a global coronavirus pandemic and restrictions on travel meant that its operating cashflows dried up, forcing the company to go into voluntary administration in April 2020.
Failed 2020

Dick Smith Holdings Limited (DSH)

Failed 2016
Dick Smith was a well-known, highly successful retailer identified by our Financial Health Model as struggling. This was a case of poor earnings’ quality, with the numbers manipulated to show strong earnings growth. In 2016, DSH was placed in voluntary administration – a sad outcome, especially for investors who lost everything, but another failure our members and investors easily avoided.
Failed 2016

Babcock & Brown Limited (BNB)

Failed 2009
Babcock & Brown was a global investment firm that at its peak had 28 offices around the world, over 1,500 employees and a market capitalisation of over $9.1 billion in 2007. The stock exchange was impressed by those 2007 numbers, but we weren’t. Our methodology looked behind those numbers to the numbers in the financial statements and knew something was wrong, especially because their operating cash flow was significantly weakening all their cash flow ratios. One year later their share price collapsed and a year after that they were in administration.
Failed 2009

One.Tel Limited (ONE)

Failed 2001
Once Australia’s fourth-largest telecommunications company and backed by some of Australia’s best-known families, including Packer and Murdoch, One-Tel began operations in May 1995 and was floated on the ASX at $2 per share in November 1997. In the following two years, its customer base more than tripled to 2.2m in seven countries. But in early 2000 we identified its dire financial position, prior to the company spending $523m in Australian spectrum licenses, requiring $620m in funding. In the same year the company paid a $6.9m bonus to its directors despite reporting a loss of $251m. One-Tel eventually collapsed on strategic mistakes and wrong pricing policies.
Failed 2001

1 Virgin Australia Holding (VAH)

Failed 2020
Failed 2020
Virgin Australia commenced operations in August 2000 as Virgin Blue with two aircrafts on single route before finding itself as a major airline following the collapse of Ansett Australia in September 2001. In 2011, the company underwent a massive transformation, introducing new aircraft, uniforms, and even a business class. However, significant debt arose from this transformation and coupled with highly unstable profits, led to its marginal Financial Health rating as far back as February 2013. The emergence of a global coronavirus pandemic and restrictions on travel meant that its operating cashflows dried up, forcing the company to go into voluntary administration in April 2020.

2 Dick Smith Holdings Limited (DSH)

Failed 2016
Failed 2016
Dick Smith was a well-known, highly successful retailer identified by our Financial Health Model as struggling. This was a case of poor earnings’ quality, with the numbers manipulated to show strong earnings growth. In 2016, DSH was placed in voluntary administration – a sad outcome, especially for investors who lost everything, but another failure our members and investors easily avoided.

3 Babcock & Brown Limited (BNB)

Failed 2009
Failed 2009
Babcock & Brown was a global investment firm that at its peak had 28 offices around the world, over 1,500 employees and a market capitalisation of over $9.1 billion in 2007. The stock exchange was impressed by those 2007 numbers, but we weren’t. Our methodology looked behind those numbers to the numbers in the financial statements and knew something was wrong, especially because their operating cash flow was significantly weakening all their cash flow ratios. One year later their share price collapsed and a year after that they were in administration.

4 One.Tel Limited (ONE)

Failed 2001
Failed 2001
Once Australia’s fourth-largest telecommunications company and backed by some of Australia’s best-known families, including Packer and Murdoch, One-Tel began operations in May 1995 and was floated on the ASX at $2 per share in November 1997. In the following two years, its customer base more than tripled to 2.2m in seven countries. But in early 2000 we identified its dire financial position, prior to the company spending $523m in Australian spectrum licenses, requiring $620m in funding. In the same year the company paid a $6.9m bonus to its directors despite reporting a loss of $251m. One-Tel eventually collapsed on strategic mistakes and wrong pricing policies.

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