Once a Value Guy, Always a Value Guy

 | Jun 21, 2012 | 1:30 PM EDT  | Comments
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Anytime I write about anything the least bit macro, like Wednesday's column, I get the inevitable questions and comments about straying from my value approach.

But nothing could be further from the truth. If you look at my portfolio, it is still full of little banks, stocks trading below net current asset value, unconventional yielders and situations I consider too cheap not to own. Since I am not glued to the screen every second of every day, however, I have time to think about, test and consider other approaches to the market and making money. I will always be a value guy, but the stock market is probably the best place for intellectual experimentation and exploration ever conceived. In one setting, you can consider psychology, corporate finance, and a heavy dose of mathematics.

I know many investors and traders who are closed-minded about the markets. This works for them and it is the only way. That's just foolish. I know wealthy value guys, rich traders and successful growth investors. There are many paths up the mountain; although my value approach fits me best, I like to explore the other paths to enjoy an alternate view occasionally.

It may surprise you to know that I spend a lot of time thinking about growth and exploring growth stocks in search of economic and social trends, as well as an occasional idea that marries growth and value. I occasionally run a screen that looks for companies with the strongest earnings and revenue growth to see what I can learn about the world and what is working on Wall Street. When I ran it today, all the usual names were there. If I were a growth investor, I would probably own Apple (AAPL) and Chipotle (CMG), and my daughter's favorite, Panera (PNRA). Those consumers who are employed are willing to pay for quality products and services, and these companies clearly benefit.

I like to add one little kink to find undiscovered growth stocks. I cut the screen down to just those with less than 50% institutional ownership. This tends to uncover smaller companies with the same strong fundamentals as their larger brethren, but have not yet been discovered by the Street. I then run them through my intrinsic value calculation and credit tests to see if they are safe and cheap enough to consider suggesting buying for the accounts of my son and daughter. Occasionally, I find one cheap enough to buy across the board.

There are some interesting companies on the short list. Craft Brew Alliance (BREW) brews three of the more popular craft beers that are distributed under an agreement with industry powerhouse Anheuser-Busch (BUD). I am not a big beer guy, but my sud-swilling friends tell me that Redhook, Kona and Widmer Brothers are great beers that should continue to gain share. The company has been growing at an impressive rate even during the last five difficult years. Revenue has grown by more than 30% annually, while earnings have surged at more than 50% annually on average. The stock currently trades at a very small premium of my intrinsic value calculation. The Piotroski F-Score is an impressive 7, so the stock is in solid financial shape and seems poised for further growth. Institutions own less than 15% of the shares, so if Wall Street notices the company, the stock could see substantial buying pressure. Odds are high my kids end up owning this one soon.

I am a strict value guy when it to comes to my own money, and the majority of my clients. But I have learned that not everyone invests exactly as I do and that being closed-minded is unprofitable. Exploring other ideas and concepts sometimes allows me to combine macro or growth ideas with value concepts to double my chances of profit.

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