Stock Selection Process


Peattie Capital is not limited to any one style, size, industry, or location, but rather is flexible and opportunistic in seeking the right situations at the right price. We invest primarily in US equities and ADRs, and may also use ETFs to hedge or gain exposure to an area where we wish to be involved. On occasion we will own a name that is traded on a foreign Exchange, but otherwise all our positions are traded on US Exchanges. We may from time to time purchase a bond and if we do it will also be tradeable on US Exchanges. We will also buy preferred stocks.

PCM is primarily driven by fundamentals, and looks closely at earnings power as the single most important factor in deciding whether to invest in a situation or not. That said, occasionally we have owned, and will likely own again, companies that are not currently generating earnings. PCM looks at standard investment ratios such as Price/Earnings, Price/Book and Price/Sales when considering ideas, and generally believes that there are no bad investments, just bad prices.

We look at these ratios in the context of the overall market, a company's historical range, and it's industry's current valuation and historical range. No single factor or ratio by itself is sufficient to invest, but rather a decision is made after collecting and examining as much data as possible including public filings, peer group statistics, industry considerations and the overall market environment.

PCM is comfortable owning companies that are going through a restructuring or that are underfollowed by the crowd. We believe that the less well known the story the better the chances for inefficiencies and, if our analysis is correct, significant outperformance. We have a number of small and mid cap names in most portfolios, sometimes alongside some of the biggest companies in the world.

We believe that different metrics apply in different industries. For example, we like owning financial companies, where we like to buy companies trading near 1x tangible book. When we look at growth companies, we consider the change in earnings growth rate measured against the forward P/E multiple (the PEG ratio) which should be below 1.

We like to see material ownership by insiders, a healthy balance sheet with manageable liabilities, cash from operations in excess of and growing faster than earnings per share, a sustainable competitive advantage, and, when possible, we like to meet management, preferably in as small a setting as possible.

PCM follows a variety of macro factors such as the level and term structure of interest rates, demographics, and geopolitical issues, among others, and always bears these in mind when we are considering positions.

We also follow closely several market and sentiment indicators such as the put/call ratio, insider activity, valuation of the overall market based on "top down" and "bottoms up" earnings projections and in relation to other available investments and on an earnings yield basis.

 

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