Identifying the Rare Firms With Big Profits, Low Prices and a History Of Flying Higher+
Flying Fortress Stocks: Making Money with Margin of Safety Investing
The legendary B-17, the third most produced bomber of all time, earned its name “The Flying Fortress” due to the plane’s ability to withstand severe damage and still find its way home. The plane’s potent defensive capabilities made it a top choice for dangerous daylight bombing missions. Equally important, however was its ability to soar to high altitudes. 
As warnings of rank speculation by legendary investors are ignored, our team has decided to keep things simple. Last week we published a Quick Take highlighting that the market cap of firms trading at less than 10x earnings had hit the lowest level in 40 years of stock market history.
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This piece seeks to provide a more potent screen with historical context to help investors looking for a bit of deep value in their portfolios. To make the cut, the firms need to have a market cap of $1bn or greater, have a 10% free cash flow yield, be investment grade, and growing revenues at 5% or more.
Impossible? Almost. As Figure 1 below shows, there are not many firms meeting these stringent criteria. There are plenty of folks on social media encouraging you to embrace 10x price to sales multiples. We’ll stick to our knitting, keep it simple, and try and turn over some compelling stocks shunned or ignored by investors.
- Historically, investing in firms meeting these strict criteria generated outsized returns for investors
- The performance of these firms generates high absolute returns
- These firms also provided potent downside protection in years when the indexes suffered losses
Due to their potent offensive and defensive characteristics, we dubbed them “Flying Fortresses.”