Quality investing is a long-term, buy-and-hold strategy that focuses on identifying companies with durable competitive advantages, consistent growth, and strong financial discipline. The goal is not to find the cheapest stock, but to find a great business at a fair price—one that can compound value for years. To filter for these characteristics, we use a systematic stock screener that applies objective, quantifiable criteria. The screening method looks for companies with a proven track record of revenue and profit growth, high returns on the capital they invest, manageable debt levels, and a demonstrated ability to convert earnings into actual cash. This process has highlighted a company operating in the automotive technology space, which displays many of the hallmarks quality investors look for.
Meeting the Core Criteria for Quality
BorgWarner Inc (NYSE:BWA) is a global supplier of technology solutions for combustion, hybrid, and electric vehicles. The company’s fundamental profile aligns well with the core filters of a quality investing screen, which prioritizes operational efficiency and financial strength over sheer size.
The first set of filters examines growth and profitability efficiency. Quality investors look for companies where earnings before interest and tax (EBIT) grow faster than revenue, a sign of improving economies of scale or pricing power. BorgWarner clears these hurdles decisively:
- Revenue Growth (5Y CAGR): 5.24% (above the 5% minimum)
- EBIT Growth (5Y CAGR): 9.57% (above the 5% minimum and significantly higher than revenue growth)
This spread between EBIT and revenue growth is a critical sign that the company is becoming more operationally efficient and profitable as it expands.
The second critical filter looks at how efficiently a company uses its capital. The Return on Invested Capital, excluding cash, goodwill, and intangibles (ROICexgc), is a key measure of a company’s “moat.” BorgWarner reports a ROICexgc of 18.15%, well above the 15% threshold required by the screener. A high and sustained ROIC like this suggests the company has a competitive advantage that allows it to generate strong profits from each dollar it invests back into the business.
Finally, the screen assesses financial risk and cash flow quality. Two metrics confirm BorgWarner’s solid financial health:
- Debt-to-Free Cash Flow: A healthy 3.17 years, meaning the company could theoretically pay off all its debt with just over three years of free cash flow, staying well under the 5-year limit.
- Profit Quality (5Y Average): An exceptional 182.47%. This ratio measures free cash flow against net income. A number above 100% indicates the company is actually generating more cash than its reported net income, a hallmark of high-quality earnings.
A High-Level Look at the Fundamentals
A closer inspection of BorgWarner’s fundamental analysis report reinforces its suitability for a quality portfolio. The overall fundamental rating is a solid 6 out of 10, but the story is in the details.
The company’s strongest scores are in Health and Profitability, which are the core pillars of a Quality Investing thesis.
- Profitability: The company stands out with an operating margin (10.53%) that outperforms over 85% of its industry peers, and a current ROIC (10.32%) that is trending higher than its 3-year average, signaling improving returns.
- Health: BorgWarner shows excellent solvency and liquidity. It has a strong Altman-Z score of 3.39 (indicating no bankruptcy risk), a healthy current ratio of 2.13, and the company is actively reducing its share count, which benefits long-term shareholders.
- Valuation: While not a primary screen filter, the valuation is reasonable. With a P/E ratio of 12.75, it is cheaper than over 73% of its industry peers and significantly cheaper than the S&P 500 average, providing a margin of safety for a quality investor.
The growth score is decent, anchored by strong historical EPS growth and a projected future EPS growth of 11.08% annually. The slight slowdown in revenue growth is a point to monitor, but the strong cash conversion and profitability metrics are the dominant factors here.
Final Thoughts
BorgWarner INC displays the quantifiable characteristics of a quality compounder: strong operational efficiency, excellent capital allocation, a fortress-like balance sheet, and a reasonable valuation. For those who subscribe to the philosophy of owning great businesses for the long haul, this stock checks the necessary boxes.
If you want to run this exact screen for yourself or explore more stocks that meet these rigorous quality standards, you can find the full list and parameters via this stock screener results page.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always conduct your own research before making any investment decisions.
Read full article here »
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BorgWarner (NYSE:BWA): A Quality Stock for Long-Term Compounders
Quality investing is a long-term, buy-and-hold strategy that focuses on identifying companies with durable competitive advantages, consistent growth, and strong financial discipline. The goal is not to find the cheapest stock, but to find a great business at a fair price—one that can compound value for years. To filter for these characteristics, we use a systematic stock screener that applies objective, quantifiable criteria. The screening method looks for companies with a proven track record of revenue and profit growth, high returns on the capital they invest, manageable debt levels, and a demonstrated ability to convert earnings into actual cash. This process has highlighted a company operating in the automotive technology space, which displays many of the hallmarks quality investors look for.
Meeting the Core Criteria for Quality
BorgWarner Inc (NYSE:BWA) is a global supplier of technology solutions for combustion, hybrid, and electric vehicles. The company’s fundamental profile aligns well with the core filters of a quality investing screen, which prioritizes operational efficiency and financial strength over sheer size.
The first set of filters examines growth and profitability efficiency. Quality investors look for companies where earnings before interest and tax (EBIT) grow faster than revenue, a sign of improving economies of scale or pricing power. BorgWarner clears these hurdles decisively:
This spread between EBIT and revenue growth is a critical sign that the company is becoming more operationally efficient and profitable as it expands.
The second critical filter looks at how efficiently a company uses its capital. The Return on Invested Capital, excluding cash, goodwill, and intangibles (ROICexgc), is a key measure of a company’s “moat.” BorgWarner reports a ROICexgc of 18.15%, well above the 15% threshold required by the screener. A high and sustained ROIC like this suggests the company has a competitive advantage that allows it to generate strong profits from each dollar it invests back into the business.
Finally, the screen assesses financial risk and cash flow quality. Two metrics confirm BorgWarner’s solid financial health:
A High-Level Look at the Fundamentals
A closer inspection of BorgWarner’s fundamental analysis report reinforces its suitability for a quality portfolio. The overall fundamental rating is a solid 6 out of 10, but the story is in the details.
The company’s strongest scores are in Health and Profitability, which are the core pillars of a Quality Investing thesis.
The growth score is decent, anchored by strong historical EPS growth and a projected future EPS growth of 11.08% annually. The slight slowdown in revenue growth is a point to monitor, but the strong cash conversion and profitability metrics are the dominant factors here.
Final Thoughts
BorgWarner INC displays the quantifiable characteristics of a quality compounder: strong operational efficiency, excellent capital allocation, a fortress-like balance sheet, and a reasonable valuation. For those who subscribe to the philosophy of owning great businesses for the long haul, this stock checks the necessary boxes.
If you want to run this exact screen for yourself or explore more stocks that meet these rigorous quality standards, you can find the full list and parameters via this stock screener results page.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always conduct your own research before making any investment decisions.
Read full article here »