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Stock Picks for the Discerning Portfolio Manager
Investment Philosophy
Polestar’s mission is the creation of long-term growth by investing in growing companies for long-term hold periods. Our strategy is to attempt to generate positive alpha in the manager’s portfolio as opposed to the typical market strategies based upon meeting or slightly outperforming market returns. Our unique contrarian stock-picking approach involves locating companies with solid business models, or what we call “franchises”, that we believe are undervalued due to short-term or medium-term uncertainties. Polestar views times of uncertainties as opportunities to obtain undervalued assets. We have created the Polestar 7-Factor Model to create a solid methodology to our approach.
Roughly 70% of our research recommendations encompass undiscovered gems or great franchises to which the market assigns cheap to reasonable valuations. As an exception, we believe it is necessary at times to pay up for a great company; in other words, the company is only slightly undervalued but because the franchise is particularly extraordinary, we believe the price is worthy. We typically recommend hold periods of one to two year, if not longer, for these types of investments.
The remaining 30% of Polestar’s research recommendations consist of “turnaround situations.” These are companies where missteps in management execution may have caused the stock to drop, yet clearly discernible catalysts and management actions indicate the situation will soon be rectified. We typically recommend hold periods of at least six months, if not longer, for these types of investments. We believe uncertainty imparts the biggest discount to a stock’s intrinsic value--Polestar’s strengths lie in understanding uncertainty and helping our clients get their arms around it.
The Polestar 7-Factor Model
Polestar has developed a "7-Factor Model" centered around our research philosophy to use in our evaluation of companies and final determination of stock pick recommendations. Polestar goes to great lengths while analyzing a potential investment. We conduct research on approximately 80 to 90 companies a year across a range of market capitalizations and various industry sectors, both domestically and internationally. Although we are generalists, market capitalizations for our investment recommendations typically land in the mid-cap range between $1 billion to $5 billion. Our due diligence can comprise of extensive conversations and meetings with company management, customers, and industry sources to gain a deep understanding of a company’s business model and the market conditions the company is likely to experience. We also utilize discounted cash-flow models to ascertain a company’s market value. Ultimately Polestar will pick approximately only 10 to 12 of the companies analyzed in a given year to issue research reports on and to recommend to clients.
Examples of Polestar’s stock picks
Most of our picks have involved launching companies with robust business models that have declining stock prices due to some controversy, missed earnings, or a change in business model that Wall Street had difficulty understanding. Some examples of these types of stock picks are as follows: AutoDesk at $7.90 in December 2002; SEI Investments at $19.00 in October 2002; United Health Group at $19.23 in December 2002; and Pharma Product Development at $27.80 in January 2004.
Some of our other picks have not had controversy surrounding them, but were solid companies that were misunderstood, or yet undiscovered, by Wall Street. Some examples of these types of stock picks are as follows: HCC Insurance at $18.67 in November 2003; Tower Group at $10.28 in November 2004; Sandisk at $27.30 in July 2005; Intel Corp. at $17.00 in mid-2006; and Medtronic, Inc. at $46.00 in mid-2006.
All prior research reports and recommendations are available for review by Polestar clients. Contact us. |
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©2007 Polestar Investment Research LLC. All rights reserved.
Security Transactions through Samuels Chase & Co., Inc., registered broker-dealer, member NASD/SIPC;
Clearing Firm- JP Morgan Chase & Co., Inc.
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