Our strategy is to focus on those companies that present an ideal mix of value and growth. Our area of focus is on micro caps (companies with market capitalization of between $50 million and $300 million). Due to the size of these companies, and the fact that they are commonly ignored by the majority of Wall Street, they present the greatest opportunities through intensive fundamental research.

Our investment decision process is 90% fundamental and 10% technical. Most of our holdings are initially discovered by screening new 26 and 52-week highs. Many investors will look at such a stock and conclude the stock has done well and it may be too late to profit any further. We take the opposite view and ask why the stock is hitting new highs and then begin our intensive research process. These companies are many times just beginning a new phase of growth or perhaps have made a game changing acquisition. The reasons for trading at new highs are plentiful and the goal is to narrow down your findings to the best stories.

To start, we review the five-year history of the company to understand its evolution. We will then read all annual 10k reports for the last three years as well as many quarterly reports as possible. This is followed by an analysis of the industry trends in which the company operates.

If we deem the company is worth additional research we will then prepare and in depth interview. We will set up an interview with company management to get a general feel for their perspective on their business and to ask questions. This will allow us to model the revenue and earnings of the company and create in house estimates that will drive our valuation. At the end of this process we may or may not initiate a position in the company.

We do not set predetermine holding periods but rather allow the investment profile and evolution determine the length of our holding period. If the value and growth proposition remains strong, we will continue to hold the position. However, as any successful investment manager will tell you, sell discipline is key to successful investment returns.

The following, among others, are characteristics that we look for in stocks:

  • Recent 52-week highs
  • Low Institutional ownership
  • Stock price under $15
  • Revenue growth rate >15%
  • EPS growth rate > 25%
  • Upside margin potential
  • Small stock floats/shares outstanding