Step 1 – Screening
Our proprietary screening process allows us to identify stocks with the following characteristics:
Stocks that are undervalued relative to the market. We do not limit our search to deep value – we are searching for any stocks that have a valuation edge versus the market.
Stocks that have a business catalyst that can drive future performance. This can be quantified by rising sales, improving margins, reporting sales and earnings that beat analyst estimates, improving free cash flows and increasing future estimates.
Companies with solid balance sheets. We prefer companies with little or no debt or companies with sufficient free cash flow to service and pay down their debt.
Step 2 – Valuation Analysis
After the initial screening is completed we use fundamental analysis to get a more complete picture of the stocks we are considering.
- We read the financial filings of the firm to see if the statements confirm our initial findings.
- We listen to earnings conference calls or read the transcripts.
- We take advantage of institutional research.
- We utilize any publicly available information.
Step 3 – Portfolio Construction
The All Cap Core portfolio will hold 35-45 stocks.
Initial position in a stock is 1.5-2% of the portfolio. We will increase the position up to 4% as the story remains intact over future quarters.
We aim to remain sector neutral but will overweight sectors where we find an excess of good ideas. We will be underweight when we are unable to find new ideas that meet our criteria.
Maximum over/underweight is +/- 5% in any given sector versus our benchmark.
Step 4 – Sell Discipline
Stocks will be sold when:
- Company misses quarterly estimates twice in a row.
- Stock becomes overvalued.
- Estimates are lowered by a majority of analysts following the stock.
- There is a significant change in the capital structure of the company.