Our Free Cash Flow Value investment process seeks to identify high-quality, undervalued stocks with superior financial strength, strong free cash flows and lower relative levels of debt that we believe will outperform over full market cycles
Philosophy
We believe investors can seek the higher returns associated with small- and mid-cap investing without sacrificing portfolio quality.
A high-quality company, in our opinion, exhibits superior financial health and a proven business model that generates strong free cash flows with a catalyst for price appreciation. Focusing on companies that can retire all outstanding debt within ten years based on expected free cash flow levels offers an added margin of safety for our clients. We also believe that a company’s value is equal to its discounted future cash flows. Earnings and earnings forecasts are important, but we see cash flows as the truest measure of a firm’s viability and operation.
Approach
- Identify compelling valuation opportunities by applying a disciplined, repeatable process based on bottom-up, fundamental research
- Buy financially healthy companies with proven business models
- Look for strong catalysts for price appreciation
- Take a long-term view
- Avoid speculative situations and financial risk
- Reduce/sell on high valuation
- Sell on signs of financial strength deterioration
Process
Identify
Rigorous screening process identifies stocks exhibiting a combination of discounted valuation and financial strength
Output = Research focus list
Analyze
Intense fundamental research examines:
- Current and historical operating results, including sales, earnings, operating and free cash flow, debt and debt coverage ratios
- Balance sheet and off-balance sheet items
- Business model, company management and industry trends
Result = Proprietary projections of future operating results and target valuations
Execute
Construct portfolio by implementing buy/sell decisions and applying strict risk controls
Goal = Actively managed strategy that seeks to capture consistent excess returns over the long term