us-value-investing

What this skill does

# US Stock Value Investing Analysis Framework

This skill helps you systematically analyze whether a US-listed company is worth holding long-term using Buffett-style value investing methods. Through quantitative assessment across 4 core dimensions, it provides a clear investment rating.

## Use Cases

Use this skill when users ask the following types of questions:
- Whether a particular US stock is worth buying/holding long-term
- Help me analyze a company's fundamentals
- How to interpret a company's financial report data
- Whether a company has an economic moat
- Help me screen stocks using value investing methods

## Analysis Framework

### 4 Core Assessment Dimensions

For each dimension, use web_search to look up the target company's latest financial report data, then evaluate according to the criteria below.

#### Dimension 1: ROE Sustainability (Return on Equity)

**What it is**: ROE (Return on Equity) = Net Income / Shareholders' Equity. Simply put: for every $100 shareholders invest in the company, how much profit can it generate in a year. An ROE of 15% means every $100 of shareholder capital creates $15 in profit. This is the single financial metric Buffett values most — he believes a truly excellent company should be able to consistently and efficiently deploy capital.

**Key point**: Don't look at just one year's ROE; check whether it has maintained a high level **consistently for 3+ years**. A single year of high ROE could be due to one-time factors (selling a building, winning a lawsuit), and only sustained high ROE demonstrates genuine competitive strength.

**Search keywords**: `[Company name] ROE history` or `[Company name/ticker] return on equity 3 year`

**Scoring criteria**:
- 3+ consecutive years ROE > 20% → ⭐⭐⭐ Excellent (3/3 points)
- 3+ consecutive years ROE > 15% → ⭐⭐ Good (2 points)
- ROE 10-15% or inconsistent → ⭐ Average (1 point)
- ROE < 10% or highly volatile → 0 points

**Common pitfalls**:
- High leverage can artificially inflate ROE. If a company has high ROE but also high debt, take it with a grain of salt.
- Share buybacks reduce shareholders' equity, thereby "inflating" ROE. This needs to be evaluated alongside actual earnings growth.
- Cyclical industries (e.g., oil, semiconductors) will see ROE fluctuate significantly with industry cycles; a full cycle should be examined.

---

#### Dimension 2: Debt Safety (Debt-to-Equity / Debt Ratio)

**What it is**: Measures how much a company borrows to fund its operations. Two commonly used metrics:
- **Debt-to-Asset Ratio** = Total Liabilities / Total Assets. 50% means half of the company's assets are funded by debt.
- **Debt-to-Equity Ratio** = Total Liabilities / Shareholders' Equity. 1.0 means borrowings equal shareholders' investment.

Low debt means the company doesn't rely on borrowing to operate and can better withstand downturns. Highly leveraged companies are vulnerable when interest rates rise or revenue declines.

**Search keywords**: `[Company name] debt to equity ratio` or `[Company name/ticker] balance sheet debt`

**Scoring criteria**:
- Debt-to-asset ratio < 30% → ⭐⭐⭐ Excellent (3/3 points): Virtually no debt pressure
- Debt-to-asset ratio 30-50% → ⭐⭐ Good (2 points): Manageable debt
- Debt-to-asset ratio 50-70% → ⭐ Average (1 point): Debt repayment capacity needs monitoring
- Debt-to-asset ratio > 70% → 0 points: High leverage risk

**Industry-specific notes**:
- **Banks and financial companies**: Inherently high debt (since deposits count as liabilities), so the same standards don't apply. For banks, Tier 1 Capital Ratio is more appropriate; typically > 10% is considered healthy.
- **Utilities and REITs**: Generally have higher debt ratios; 50-60% is normal within the industry.
- **Tech companies**: Many quality tech companies have very low debt ratios or even net cash positions, which is a positive indicator.

---

#### Dimension 3: Free Cash Flow Quality (Free Cash Flow Quality)

**What it is**: Free Cash Flow (FCF) = Operating Cash Flow - Capital Expenditures. Simply put: the **cash truly left over** after the company completes all its business activities, pays all operating expenses, and purchases necessary equipment and facilities.

Why compare it to net income? Because net income can be "window-dressed" through accounting methods (e.g., adjusting depreciation schedules, timing of revenue recognition), but cash flow is hard to fake — the bank account balance is what it is. When FCF exceeds 80% of net income, it indicates the company's profits are "real money," not just numbers on paper.

**Search keywords**: `[Company name] free cash flow` or `[Company name/ticker] cash flow statement`

**Scoring criteria**:
- FCF > 100% of net income → ⭐⭐⭐ Excellent (3/3 points): Cash flow exceeds profit, extremely high quality
- FCF > 80% of net income → ⭐⭐ Good (2 points): High-quality earnings
- FCF = 50-80% of net income → ⭐ Average (1 point): Notable gap, reasons need investigation
- FCF < 50% of net income or negative → 0 points: Earnings quality is questionable

**Common scenarios**:
- **High-growth companies**: Companies in rapid expansion phases like Amazon and Tesla have massive capital expenditures (building warehouses, factories), resulting in temporarily low FCF. This isn't necessarily bad, but you need to assess whether the investments will generate future returns.
- **Mature companies**: Mature companies like Coca-Cola and Procter & Gamble typically have FCF well above net income — a hallmark of quality "cash cows."
- **One-time factors**: Abnormally low FCF in a particular year could be due to a large acquisition or one-time investment; multi-year trends should be examined.

---

#### Dimension 4: Economic Moat Assessment (Economic Moat)

**What it is**: A concept introduced by Buffett, referring to a company's "defensive fortification" that prevents competitors from eroding its profits. Like the moat around a medieval castle — the wider and deeper the moat, the harder it is for enemies to breach. Companies with moats can maintain above-average profit margins for extended periods.

**Four main types of moats**:

**A. Brand Moat (Brand)**
- Consumers are willing to pay a premium for the brand, even when cheaper alternatives exist
- Examples: Apple (iPhone premium), Hermes (luxury pricing power), Coca-Cola (global recognition)
- Search to verify: `[Company name] brand value ranking` or `[Company name] pricing power`

**B. Network Effect (Network Effect)**
- The more users a product has, the more valuable it becomes, creating a positive "stronger with more use" feedback loop
- Examples: Visa/Mastercard (merchants and cardholders attract each other), Meta (social network), Microsoft Office (everyone uses it so you have to as well)
- Search to verify: `[Company name] network effect` or `[Company name] user growth ecosystem`

**C. Cost Advantage (Cost Advantage)**
- Ability to offer products or services at significantly lower costs than competitors
- Examples: Walmart (bulk purchasing), TSMC (technology + scale barriers), Costco (membership model + optimized supply chain)
- Search to verify: `[Company name] operating margin vs competitors` or `[Company name] cost advantage`

**D. Switching Costs (Switching Cost)**
- The cost for customers to change suppliers is high (time, money, learning curve)
- Examples: Salesforce (switching CRM systems is extremely painful for enterprises), Adobe (designer ecosystem dependency), Oracle (database migration costs)
- Search to verify: `[Company name] customer retention rate` or `[Company name] switching costs`

**Scoring criteria**:
- Possesses 2+ types of strong moats → ⭐⭐⭐ Wide moat (3/3 points)
- Possesses 1 clear moat → ⭐⭐ Narrow moat (2 points)
- Has some competitive advantages but not obvious → ⭐ Weak (1 point)
- No obvious moat, intense industry competition → 0 points

---

### Overall Rating Logic

Sum the scores across all 4 dimensions (maximum 12 points):

| Total Score | Investment Rating | Meaning |
|----