Our Approach
Equities

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Idea Generation


  • We screen the universe of public companies looking for those that meet our various ratio and multiple requirements, along with important balance sheet characteristics.
  • We continuously review our internal database of companies we have analyzed and, in many cases, owned throughout the years.
  • Our research team contributes their knowledge, insight, and expertise regarding industries, companies, and general financial information.
  • Individual company news and results can provide event-driven opportunities.
  • Economic data and other news items can provide the basis for investment themes.

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Initial Analysis


  • We review the strength of the company's balance sheet. For nonfinancial companies, we typically look for those with 25% or less total debt-to-capital. However, there are times when the total debt-to-capital ratio of portfolio holdings may exceed 25%. Cap size, industry, and market environment are influencing factors.
  • We review the quality of the business. We look for leaders in an industry or sector that are likely to recover or flourish.
  • We study the business drivers of the company. We seek to identify those companies that are nearing an up cycle or that are likely to experience new growth opportunities. We look for potential hidden values.
  • We determine the company's reward-to-risk characteristics. This gives us the opportunity to see if a new idea has the same or stronger return potential than what we currently own or have on our list of approved ideas.

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Detailed Analysis


  • We build a 10- to 20-year in-depth historical financial model. This allows us to take a deeper look into identifying the key value drivers of the company, key turning points in revenues and margins, and high and low multiples such as EV/EBITDA, price/book, P/E, etc., over an extended period of time.
  • We typically incorporate a detailed analysis of the company's various sectors and divisions in order to further identify and quantify the business drivers and hidden values. In addition, we make adjustments for new lines of business, for sold or closed lines of business, and for different capital structures.
  • We project the future financials of the company under various scenarios, adjusting for growth rates, margins, multiples, and other aspects of the company's financial statements that may affect its current and future value.
  • We determine the intrinsic value and actionable price points. While these can be specific numbers, we typically think of these price points in terms of ranges and zones in which the company can trade given certain circumstances.

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Review and Approval Process


  • Analysts present their new investment idea to portfolio managers. This gives the portfolio managers the opportunity to challenge, test, and discuss the analyst's research and major assumptions.
  • Portfolio managers focus their attention on revenue drivers and cyclical versus structural recovery issues, and review past business cycles to determine what is likely to repeat. In addition, portfolio managers review the company's market share gains or losses, as well as new growth opportunities.
  • Portfolio managers determine if the analyst's price points incorporate a proper margin of safety and if the company is suitable for investment in one or more of the CM investment strategies.
  • Portfolio managers make the final determination as to whether or not the reward-to-risk characteristics of the company warrant putting it on the CM approved list of investment opportunities.
  • Final actionable price points and maximum position size are agreed upon by the portfolio managers.

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Portfolio Construction


  • Approved stocks are sorted by the best reward-to-risk characteristics. This list also incorporates cap size, the company's sector and industry, and other important information used for comparative analysis.
  • Specific portfolio construction characteristics will vary depending on the client's chosen investment strategy. Details, such as specific trading instructions, maximum position size, average number of holdings, as well as minimum and maximum cash levels allowed in a portfolio, may vary.
  • The monitoring and review of individual holdings and investment strategies are performed by portfolio managers and other members of the investment team on an ongoing basis.

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