Quantitative & Qualitative Analysis
Our quantitative analysis identifies:
- Stocks with an earnings yield (earnings per share divided by the stock price) which exceeds the yield of a 10-year government bond;
- Stocks priced lower than the company’s net asset value with weak earnings and other problems discounted in the price, yet the company has a good balance sheet and low cost structure;
- Stocks that trade at a discount to fair market value with financial characteristics better than alternative investments;
- Stocks where we believe returns will dramatically improve due to a governance and management culture shift, the sale of a losing division, or a change in the supply/demand dynamics in the industry.
The qualitative analysis of an investment can include a company’s governance practices and ownership structure, management and incentive programs, employee turnover and labour relations, research and development, products and services, competitive strengths and weaknesses, capital intensity, and accounting policies and disclosure practices. We examine whether qualitative issues, such as the effective execution of an operating or growth strategy, are reﬂected in the stock price.
We look at the entities within a corporation to determine whether proﬁtable operating divisions can be spun off for shareholder gain. Is the company’s value based on only a portion of its operations, delivering the rest of the business for free?
We examine two companies in the same business with essentially the same outlook to determine whether the market is pricing them differently for no plausible reason.
We look for inefﬁciencies between global economies in the pricing of corporate assets, leading to the discovery of attractive opportunities in Japan (for instance) versus comparable companies in North America.
We decide to take gains when our target prices are reached, unless there are compelling reasons to continue owning those shares or there are liquidity constraints.
“To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.”
– John Templeton