It's hard to erase what you've learned and what made sense to you.
I've been a big fan of high ROE stocks for some time now, so it's been automatic: if a stock has a ROE lower than 20, I almost immediately look elsewhere.
In the recent past, I realized that, in some cases, a medium ROE is fine when a business has a great moat and great growth.
In that category, there's LKQ, the aftermarket auto parts provider that's a big holding of Giverny Capital. It's also a stock nobody is talking about.
That stock doesn't look so great at first sight. But if we dig a little, we can find something interesting:
Beta: 0,55 (stocks with a Beta under 1 always get my attention because they're usually very predictable stocks)
As we can see below, the growth is very consistent:
2011 EPS: 0,72$
2012 EPS: 0,88$
2013 EPS: 1,04$
2014 EPS: 1,26$
2015 EPS: 1,39$
2016 EPS: 1,54$
EPS growth from 2011 to 2016: 114%
Actual ROE: 15
Average ROE last 5 years: 15
Debt VS earnings: About 9 times (medium-high)
Shares: A little dilution every year for the last 5 years (very light dilution, however)
Sales growth last year: 30%
EPS growth last year: 20%
Actual PE: 22
Forward PE: 16
Average PE last 5 years: 24
O'Reilly performance last 5 years: 272%
Advance Auto Parts performance last 5 years: 156%
LKQ performance last 5 years: 141%
Take note that O'Reilly and Advance auto Parts are not exactly in the same sector, but it's close. They're also trading for a higher forward PE than LKQ.
In retrospect, I think that LKQ is a good buy. There's steady growth, OK ROE, a sector which is absolutely not related to fashion or legislation, little volatility and nobody gives a shit about that stock. The debt is a little high, but not too much. I'd rather see buybacks than dilution, but once again, dilution is reasonable.
Popular stocks move like crazy. Quiet stocks go their own way.