Based on our initial universe of 1,100+ companies, we utilize various industry sources to develop a working list of companies that meet market capitalization and minimum financial criteria. The resulting universe of stocks (800 names) is divided into detailed industry screens to compare valuations of similar companies on a variety of measures. Variables examined include price/earnings, price/cash flow, price/sales, price/book value, earnings, cash flow, sales, asset values, and balance sheet measures, but the process is not limited to any single absolute low valuation criterion.
Our team works in a collaborative way throughout the entire investment process and everyone on the team, including our CIO and portfolio manager, has research responsibilities. Once the investment universe is narrowed to 125 companies that have compelling characteristics, our analysts conduct in-depth fundamental research including direct contact with senior company management, review of competitors and customers, and the development of detailed earnings projections. We conduct on-site management interviews as part of our due diligence process. Companies that offer the most compelling reward/risk relationship, catalyst and management we have conviction in are purchased to build a portfolio of 35 - 45 stocks.
We have used this process for more than a decade and our experience enhances our commitment to its implementation. Further, we have worked in the small- and mid-cap space for the majority of our careers, providing our team with a level of familiarity with a large portion of the universe as well as the vagaries of small companies that few managers can match.