One of the strategies I used during the coronavirus sell-off was to screen for companies with:
>50% fall in stock price (180day peak to current)
Net Debt/Capitalisation <= 30%
ROE >10%
Market Cap >US$1bn
With this list I then scanned their charts to identify companies with:
Strong upward trending LT charts (tier 1)
Those which had clearly broken out of their historical trading range (tier 1-2)
At the very least, those that had sharp declines in late Feb/early March 2020 (tier 2 or 3)
I eliminated those with LT downtrending charts which obviously had issues other than the virus. I also eliminated most low liquidity and frontier market investments e.g. Brazil, SE Asia. For the remainder I tried to identify a conservative price point (using MAs and around the time of the virus led selloffs) where prices could mean revert.
Using that information I ranked them Tier 1 to 3 based on the chart strength and the potential return (mean reversion event). The list wasn't long, only 30 names and only 9 I considered Tier 1. The idea was to quickly find companies with best chances for survival, great historical profitability and stock performance - the best mean reversion candidates.
I bought an initial tiny amount in each (~0.2% of my Equity exposure) starting from the Tier 1s and managed to get 18 different positions before a lot of the big recovery bounces.
From there I stuioed these companies individually starting with those where I expect the operations to be sturdiest and with highest % reversion upside. I studied their ARs, last year of earnings transcripts and presentations and as much as I could about their business. I built models looking at their historical margins (stability, expansion, what happened in past downturns), profit growth (from Rev growth or margins, organic or not), cash flow strength (e.g. D&A vs capex, M&A accretion to profits) and balance sheet robustness (WC needs, Debt). The forecasts I projected were under very, very conservative state of world conditions.
From this list, some of the strong ideas to come out were briefly:
Euronet Worldwide: ATM and electronic funds transfer; digital coupon purchase (e.g. mobile prepay top up, gift cards); Money Transfer (peer to Western Union). A great operating history, strong cashflow generation and large insider interest. Its businesses benefit greatly from network scaling effects. Has exposure to Tourism but will bounce back quickly when things normalise. Most costs are variable so margins are protected and it can continue growing well both organically and via bolt on M&A. On mid teens FY19 earnings it would imply 70% upside from today's share price of $88.
Spirit Aerosystems: Boeing's biggest aerostructures contractor with the entire 737 MAX fuselage contract. A better than binomial bet with ~3.2x upside assuming just stock price recovery to early 2/2020 price (1.5months after Boeing told Spirit to stop 737 fuselage production). SPR's survival is protected by both by Boeing (which recently gave it inventory and prepayment support) and local governments (large local employer in both Wichita and Tulsa, Oklahoma). If Boeing survives, then Spirit will be a multi-bagger over the next 1-2yrs. It is also an important supplier to Airbus for wing systems and propulsion.
Loomis: cash transit (deliver cash to banks, atms) and cash management (for small business, banks, etc). Low growth business but extremely stable and concentrated market. Great operating history, cashflow generation and dividends which has grown 16% CAGR over the past 11yrs! Currently trading at just 8.8x FY19 earnings. Upside of 50% assuming mean reversion to SEK340 (mid teens PE on FY19 earnings and roughly the share price in early March 2020).
I've increased my position sizing for these ideas and a few others while others have been cut or sold entirely e.g. Gildan Activewear (poor operating history and balance sheet issues), Texas Pacific Land Trust (stock price bounced back to almost pre-downturn levels).
Given my scarcity of time I plan on selling out all the companies with <20% mean reversion potential to focus on higher value targets. Although my confidence level won't be as high on these investments as when I was focusing on just a few companies at a hedge fund, the downturn has put a huge margin of safety into play with much of the risk systematic rather than company specific. So with some diversification and care, hopefully the results will be good given some time. In any case, the returns on the above strategy is already yielding good results.
It's a good time to be an investor.
コメント