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 companies 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

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

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%+ accuracy in predicting corporate failures in both Australia and the U.S.

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. They are the best of the blue chips and the most dynamic of small caps. Flying under the radar and often 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 Appen Limited (APX)
  • 2 Cochlear Limited (COH)
  • 3 CSL Limited (CSL)
  • 4 REA Group Ltd (REA)

Appen Limited (APX)

Appen, founded in 1996, provides language technology data and services (such as speech recognition and content relevance in search engines) to government and corporate enterprises. We identified APX in March 2017, when it was only trading at $2.68. In a globally connected world where language technology data is paramount for expanding digital platforms such as smartphones, gaming consoles, search engines and social media, APX has been able to leverage of artificial intelligence to build a large client base, providing the business with significant cash flow. In just over a few years, the stock has grown to 7x our initial investment.

Cochlear Limited (COH)

Cochlear is a global leader in manufacturing and supplying of hearing implants to the hearing impaired. An Australian company with a stock price that sits around $200 , we were drawn to Cochlear in 1997 by the health of its numbers when its shares were only $4.80 and the market had yet to discover it. Its continued innovation, increasing margins and expansion into developing markets finds it sitting happily in the ASX 200 now, a “buy” recommendation on many analysts’ lists.

CSL Limited (CSL)

CSL is the global biotechnology company that researches, develops and manufactures blood plasma and flu prevention products to help treat and prevent serious human medical conditions. Created when the Australian Federal Government privatised the Commonwealth Serum Laboratories in 1994, the strong financial health indicated by its numbers had us bringing it to the attention of investors soon after in 1996. Over the years CSL has been a fantastic generator of wealth for Lincoln clients and it continues to be one of the strongest performers on the ASX, with operations spread across 30 countries.

REA Group Ltd (REA)

REA is the global online real estate advertising company that grew out of the property website realestate.com.au. The business’ healthy numbers brought it to our attention in 2005, at a share price of $2.27, as the market was trying to work out which of the online classified businesses would succeed in a crowded landscape. With News Corp Australia as a majority owner, the business continues to grow as it expands into new countries with complementary service offerings.

1 Appen Limited (APX)

Appen, founded in 1996, provides language technology data and services (such as speech recognition and content relevance in search engines) to government and corporate enterprises. We identified APX in March 2017, when it was only trading at $2.68. In a globally connected world where language technology data is paramount for expanding digital platforms such as smartphones, gaming consoles, search engines and social media, APX has been able to leverage of artificial intelligence to build a large client base, providing the business with significant cash flow. In just over a few years, the stock has grown to 7x our initial investment.

2 Cochlear Limited (COH)

Cochlear is a global leader in manufacturing and supplying of hearing implants to the hearing impaired. An Australian company with a stock price that sits around $200 , we were drawn to Cochlear in 1997 by the health of its numbers when its shares were only $4.80 and the market had yet to discover it. Its continued innovation, increasing margins and expansion into developing markets finds it sitting happily in the ASX 200 now, a “buy” recommendation on many analysts’ lists.

3 CSL Limited (CSL)

CSL is the global biotechnology company that researches, develops and manufactures blood plasma and flu prevention products to help treat and prevent serious human medical conditions. Created when the Australian Federal Government privatised the Commonwealth Serum Laboratories in 1994, the strong financial health indicated by its numbers had us bringing it to the attention of investors soon after in 1996. Over the years CSL has been a fantastic generator of wealth for Lincoln clients and it continues to be one of the strongest performers on the ASX, with operations spread across 30 countries.

4 REA Group Ltd (REA)

REA is the global online real estate advertising company that grew out of the property website realestate.com.au. The business’ healthy numbers brought it to our attention in 2005, at a share price of $2.27, as the market was trying to work out which of the online classified businesses would succeed in a crowded landscape. With News Corp Australia as a majority owner, the business continues to grow as it expands into new countries with complementary service offerings.

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 Gunns Limited (GNS)
  • 4 Babcock & Brown Limited (BNB)

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 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 consumer electronics retailer with a bricks and mortar retail presence throughout Australia when it floated on the Australian Stock Exchange in December 2013. While many investors were attracted by this well-known brand, the business behind it was struggling, with our proprietary quantitative methodology immediately indicating a poor financial health warning due to weakening operating cash flows and poor inventory management. Three years after listing, DSH was placed in voluntary administration, a sad outcome that the numbers helped us to avoid.
Failed 2016

Gunns Limited (GNS)

Failed 2012
Gunns Limited was a major forestry enterprise that was one of the largest export woodchip operations in the Southern Hemisphere. At its peak, it had an annual turnover in excess of $600 million, a market value of $1 billion and was listed on the ASX 200. However, from early 2007, it was identified as 'Early Warning' due to its significant debt and lack of free cashflow. During the Global Financial Crisis, the company managed to stay afloat following a series of capital raisings but eventually GNS was placed in voluntary administration in 2012. Thanks to what the numbers told us, we managed to avoid this outcome having removed the stock from our Star Stock universe in February 2005 at a price of $4.16.
Failed 2012

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 were 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. Another stock crash our members and investors avoided because we only invest in strong numbers.
Failed 2009

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 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 consumer electronics retailer with a bricks and mortar retail presence throughout Australia when it floated on the Australian Stock Exchange in December 2013. While many investors were attracted by this well-known brand, the business behind it was struggling, with our proprietary quantitative methodology immediately indicating a poor financial health warning due to weakening operating cash flows and poor inventory management. Three years after listing, DSH was placed in voluntary administration, a sad outcome that the numbers helped us to avoid.

3 Gunns Limited (GNS)

Failed 2012
Failed 2012
Gunns Limited was a major forestry enterprise that was one of the largest export woodchip operations in the Southern Hemisphere. At its peak, it had an annual turnover in excess of $600 million, a market value of $1 billion and was listed on the ASX 200. However, from early 2007, it was identified as 'Early Warning' due to its significant debt and lack of free cashflow. During the Global Financial Crisis, the company managed to stay afloat following a series of capital raisings but eventually GNS was placed in voluntary administration in 2012. Thanks to what the numbers told us, we managed to avoid this outcome having removed the stock from our Star Stock universe in February 2005 at a price of $4.16.

4 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 were 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. Another stock crash our members and investors avoided because we only invest in strong numbers.

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