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IMS Capital Value Investment Process
The IMS Capital Value investment process is based upon careful research and the consistent application of rigorous buy and sell disciplines.
The stock selection process is designed to produce a diversified portfolio of mid cap companies exhibiting both value and momentum characteristics.
Fundamentally undervalued stocks
Value characteristics include a historically low stock price, as well as historically low fundamental ratios such as price-to-earnings, price-to-sales, price-to-book and price-to-cash flow.
Positive momentum suggests stocks are actively recovering
Momentum characteristics include positive relative price strength, positive earnings revisions, positive earnings surprises and various specific catalysts.
Midcap stocks offer attractive risk/reward profile
IMS invests primarily in the stocks of undervalued, mid-sized, U.S. companies with market capitalizations of $1 to $15 billion. Mid-cap companies are capable of offering the best of both worlds - the flexible, innovative, high-growth aspects of small companies with the proven management, as well as the products and liquidity of large-cap stocks. Mid-cap stocks are generally well capitalized, globally diversified and have the resources to successfully weather negative business conditions.
Concentrated diversification
IMS seeks to reduce risk through diversification. Typical portfolios consist of forty to sixty companies diversified across eleven major industry sectors, providing adequate diversification without diluting the impact of our best research.
Fast moving streams
IMS carefully researches companies in opportunistic areas. Selected stocks fall into one of seven strategic focus areas: healthcare, technology, financial services, entertainment/leisure, consolidating industries and historically defensive industries.
Proprietary 36-point scoring model
Our research process employs a scoring model to evaluate all companies on a consistent basis. Factors in our model include:
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Financial ratios (vs. market,
industry & historical levels) |
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Debt-to-equity levels |
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Reason for decline |
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Seasoning (elapsed time since decline) |
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Capital expenditures (intensity & trend) |
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Product cycle length |
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Repurchase cycle length |
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Barriers to competition |
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Immunity to product obsolescence |
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Earnings growth
consistency |
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Global sales |
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PEG ratio |
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Organic growth |
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Analyst sentiment |
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% down from high |
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Earnings
surprises |
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Earnings
revisions |
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Catalysts |
"Seasoning" helps ensure we are not too early
IMS employs a patient approach to the stock selection process, believing that most value managers tend to buy too early. Our studies indicate that after a company experiences a significant decline in price, it will tend to under perform the market during what we term a seasoning period, usually 18 to 24 months. IMS purchases undervalued companies once they have seasoned and have begun to develop several positive momentum characteristics.
Rather than speculate on a company's short-term prospects, we invest in businesses for the long term. Portfolios are managed for maximum, after-tax total return. Since our diversified, value-oriented portfolios are defensive by nature, we remain fully invested and do not attempt to forecast short-term movements in the market.
Sell discipline
IMS believes most value managers sell too early. We set sell targets for all companies we own based on our internal analysis of the company's future value. We generally sell only after two conditions have been met:
- 1. The company has exceeded its target sell price.
- 2. The company has demonstrated a loss of momentum.
Occasionally companies are sold or reduced before reaching their price targets or before they lose momentum. Reasons for selling a company prematurely include:
- Position exceeds 10% of total portfolio value.
- Unsustainable valuations.
- The company becomes involved in a merger or acquisition
- Industry-wide negative legislation or litigation.
- A significant change in the company's management or direction.
- The emergence of better opportunity within the same industry.
To request more information, please contact us.
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