How do I decide which company to buy?

Hi A.R.,
Thanks for your message.
I understand your position trying to decide between two companies to invest in.

In this case, I would make two columns on a piece of paper with MYL on one side and WDC on the other. Then answer these types of questions below.

I can show you an example of how I’d find this info with Western Digital Corp. (WDC).

Here are some sources you can use for info:

• Annual Report: http://www.annualreports.com/Company/western-digital-corp
• Company History: http://www.fundinguniverse.com/company-histories/western-digital-corp-history/

First you have to answer if this is a good company at a bargain price.
You can easily go btmastockanalyzer.com to see if any stock shows up as a good company at a bargain price.

Which company do I know of better?
(You’ll have to answer this from your own knowledge.)

Which company do I understand their business model better?
(You’ll have to answer this from your own knowledge and by learning more about the company in the Annual Report.)

Has this company been around for 10 or more years producing the same product or service?
Yes, see the company history here: http://www.fundinguniverse.com/company-histories/western-digital-corp-history/

Do I believe this company will continue to be around for the next 10 years producing the same product or service?
This is your opinion based on facts you know about the company, it’s fundamentals (from BTMA Stock Analyzer for example), and your belief in whether the company’s industry will continue to be necessary in the future. I personally feel that Western Digital will be around in the next 10 years, but I’m not sure if it will be producing the same product or service because this kind of technology can change rapidly making certain products obsolete.

In a worse-case scenario, would you be confident in holding this company for 10 years?
I personally wouldn’t be confident, because I would be worried that this technology might become obsolete. Also, I don’t understand the complexities of external drives, devices used in servers, or cloud computing data centers. But if you understand these products well and are confident in the technology and products being successfully produced and sold by WDC in 10 years, then this could be a good choice for you. Basically, you need to understand the companies that you invest in.

PRICING POWER:
Buffett has said that pricing power is one of the most important factors in evaluating companies. In Buffett’s words: “The single most important decision in evaluating a business is pricing power,”

He goes onto say: “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

So look at MYL and WDC’s pricing power.
Can they easily raise prices without losing business to a competitor? Or is their niche market very competitive that they have to keep prices low to compete?

I simply search in the Annual Report to find this information:

“Competition
We compete with manufacturers of HDDs for client compute, client non-compute and enterprise applications and manufacturers of SSDs. The HDD market consists of five principal brands: HGST, Samsung, Seagate, Toshiba and WD. In solid-state products, we compete with a wide range of manufacturers, from small startup companies to multinational corporations, including Intel, Micron, Samsung, SanDisk, Seagate and Toshiba.”

Then I can look up some of WDC’s product prices and see how the competitors’ prices are for the same items. If WDC’s prices are about the same or less than the competition, then I can assume that WDC does not have much pricing power and they could be in a price war with the competition to make sales.

Do they have anything that gives them a significant competitive advantage (e.g. patents, brand loyalty, exclusive rights, a sort of monopoly, extreme difficulty for competitors to enter their market, etc.)
Again, I’d go back to the Annual Report for this info and search for “patents”.
And I found this:

“Patents, Licenses and Proprietary Information
We have more than 7,000 active patents and have many patent applications in process. We believe that although our active patents and patent applications have considerable value, the successful manufacturing and marketing of our products depends primarily upon the technical and managerial competence of our staff. Accordingly, the patents held and applied for do not ensure our future success. In addition to patent protection of certain intellectual property rights,…”

Finally, you’d want to look for any specific negative reasons why you shouldn’t invest in this company like:

Pending Bankruptcy
Company is in a dying industry.
Patents/Licenses are expiring.
Gov’t subsidies are expiring.
Resources needed to produce product/service are depleting.
Some factor will significantly reduce future business profits or growth.
Company has strong labor union.
The company is radically changing its business model.
The company’s recovery is dim and you are speculating if a “turnaround” could happen.

After going through both companies like this, you should be able to tell which company seems like a better investment for you.

And from my example, you can see that almost all of the answers can be found in the most recent Annual Report.

I hope this info is helpful,
-Grant