Explanations - Portfolios, Ratings, Types, Recommendations

Stock Portfolios and Coverage

We are looking for companies that have already established a sound track record and trajectory of profits, growth and dividends, or for those that are already showing capabilities of building such a record.

While many resource companies might justify inclusion, and some health sciences companies, we lack successful experience in assessing these fields, which often also exhibit a larger risk and ongoing capital needs.

We also tend to exclude most whose base of operations lies outside Australia. This leaves a wide field for investment, some 800 of 1800-odd companies lised on ASX. Of these, however, a large number have small market capitalisation and low and in some cases infrequent trading volume. Meanwhile, the top 100 companies are followed by many analysts and the investor has many sources of guidance.

Russell Research is thus focused on its selected 200-odd mid-tier and smaller companies, with a smattering of larger ones, where we zoom in to study and write sketches or reports on those where we see sound reasons for outperformance. Thus we believe we can match the longer-term investor's objectives.

Portfolios

We classify these midcap industrials into key portfolios or groups :-

• Best Stocks - Stocks we consider most suitable for the longer-term investor (and these can include larger stocks than our midcap focus).

• Potent Stocks - Stocks we consider likely to rise into the "Best" category.

We add a third group of stocks with higher risk but high potential -

• Specs - Stocks with Special Situation or Speculative Interest, mostly smaller.

For comparison and as the breeding ground for our stock selections, we also show tables of our full coverage of industrials, split into -

• BigCap - Large industrial stocks over $1.5bn in market capitalisation,

• Midcap - Most industrials between $50m and $1.5bn market capitalisation with reasonable volume of stock trading, and, for comparison, the

• ASX200 Industrials Index.

The "Midcap" stock list is that on which we run our "Russell Research Midcap Index" to show the performance of the sector against published S&P/ASX Indices, and as a basis for evaluating past performance of our stocks. Aside from a comany's activities and market capitalisation, we also look for reasonable market trading volume.

A stock can be in more than one of these portfolios. Those we consider the 'Best' companies for investment are held in or moved into that group, the second ranking are moved into the 'Potent' portfolio.

Members should not confuse our portfolios with your own. Our 'Best' and 'Potent' portfolios are groupings of stocks we consider have outperforming upside. They also come from a range of industry sectors, again weighted to those we consider likely to outperform. They may overlap one another and hence need to be chosen with risk diversification in mind when selecting them for your own portfolio. As frequently noted in this website, we do not know your particular investment objectives and constraints, so we leave it to you to select those you and your adviser consider most appropriate for your purposes and risk parameters, your preference for high dividend, franking, growth, and the time frame of your investment horizon.

Ratings

We provide ratings on those stocks we know well and like. Our ratings are shown in the tables and reports by playing card symbols, which imply :-

Spades ♠     "Keeps coming up trumps"

Hearts ♥     "We really like it"

Diamonds ♦     "Proven hard performer"

Clubs ♣     "Tough and reliable".

These phrases are only indicative, but you will follow their import.

We may consider a company suitable for a particular type of investment :-

• Core - may be held as a core portfolio stock for long-term investment

• Growth - likely to outperforming in growth over the longer term, with some yield

• Yield - expected to provide solid yield, typically franked, plus growth or stability

• Spec - considered for its speculative prospects, or as a special situation.

Recommendations

We give recommendations for trading a number of the stocks in our coverage, using the terms :-

• Strong Buy (could grow at 20% or more in real or market terms)

• Buy (could grow at ~15% in real or market terms)

• Accumulate / Add or Outperform (could grow at ~10% in real or market terms)

• Hold (Market Perform or likely flat performance)

• Lighten (Slightly Over-priced or less likely to show short-term out-performance)

• Sell (Better value elsewhere or considered likely to slide in short/medium term).

It would be unlikely that any stock would survive long in our portfolio coverage once it gains the tag 'Sell'. However, we expect to use some of these terms more actively later this year in our emails to Gold Members and Partners as we build up our systems for consistency and fast response in trading advice.