growth + value opportunities

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GeoInvesting

• Maj Soueidan (@majgeoinvesting, @GeoInvesting)

• Bought first stock in college

• Fulltime investor since 1994, two years post-college

• Co-founder of GeoInvesting, Launched 2007

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What We Do

• Help investors navigate a micro-cap space that consists of thousands of stocks and an infinite number of information sources

• Increase Awareness

• Save time performing research

• Help current micro-cap investors find underfollowed ideas

• Relate to the everyday investor

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What We Do• Publish articles, present elevator pitches and issue

morning alerts• About to launch a new product to help microcap

investors perform more efficient earnings press release and SEC filing research. (Waiting list – http://geoinvesting.com/geo-brick)

• Building a community of great investors who contribute great ideas to our site.

• We also help institutional investors/firms with their in-house research needs

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Playing Field Has Shifted

• Microcap Attrition • Institutions• Brokers• Retail investor

• Investors are looking for “less risky” investments in large caps or speculative quick hits to reduce “time” exposure

• Has impacted the speed at which really cheap value + growth propositions rise to fair value and how long they hang onto gains.

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Playing Field Has Shifted

• 55% percent of Americans are invested in stock market compared to 62% before the 2008 financial crisis. (Source: http://www.gallup.com/)

• Although investor participation has remained fairly steady over time, they are choosing ETFs and funds .

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Playing Field Has Shifted

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Playing Field Has Shifted

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Playing Field Has Shifted

• Pre-2008 the retail investor accounted for 2/3 of trading volume. Now program trading accounts for 2/3 of trading volume. (Sources: https://en.wikipedia.org, http://etfreference.com/

• Less money finding its way into individual stocks + less involvement in the microcap stocks = Lack of price appreciation

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You Are Not Alone• 2015 was one of Warren Buffet’s worst years in his history. Here

are some excerpts from a CNN Money article in December 2015 discussing Mr. Buffett’s year:• “It’s been a tough year for most investors — including the

most legendary one out there.”• “Warren Buffett’s Berkshire Hathaway is on track for its worst

year since 2008.”• “This year, Buffett is lagging the market.”• “The last time that Berkshire had a down

year and underperformed the S&P 500 was all the way back in 1999. That year, the S&P 500 gained 19.5% while Berkshire’s A shares fell 20% and the B shares were down 22%.”

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De Ja Vu

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Separating Growth & Value

• Value - Value investors are strictly concerned with the here and now; they look for stocks that, at this moment, are trading for less than their apparent worth.

• Growth - Growth investors, on the other hand, focus on the future potential of a company, with much less emphasis on its present price.

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Separating Growth & Value

• “Growth” investor has little regard for value.• Value investor puts little emphasis on the future

growth of a company. • When in reality investors just have different

perspectives on what is cheap.

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Separating Growth & Value• Value investor is perceived to only invest in boring beaten

up stocks trading at their lows.• Growth investor is buying in vogue speculative companies

with huge growth rates trading at highs that will grow into their valuation.

• But sexy “growth” stocks can have tremendous value if found at the right time and boring companies can experience extraordinary sales and earnings growth.

• The price level of the stock does not alone define its value. Value can be found across 52 week highs and lows.

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Combining Growth & Value

If you subtly combine these concepts you have a beautiful scenario. One where a stock is undervalued by your standards based on what is going on today, but is being grossly mispriced because of what you think is going to happen in the future.

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Common Sense

• Common Sense: Warren Buffett:

“Market commentators and investment managers who glibly refer to ‘growth’ and ‘value’ styles as contrasting approaches to investment are displaying their ignorance, not their sophistication…”

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GARP (Growth At A Reasonable Price)• Avoid extremes (Source: Investopedia)

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GARP

GARP investors seek a balance between companies that have had consistently strong earnings growth and those trading at attractive price valuations. (Source: https://www.tradestation.com)

• Reasonably low valuation multiples

• Sustainable EPS growth rates

• In good hands: Peter Lynch, Mario Gabelli, David Dremen.

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Finding Your GARP Strategy

Peter Lynch• Trailing P/E<25• Forward P/E<15• Debt Ratio <35%• EPS Growth >15% to <30%• PEG Ratio (PE/EPS Growth Rate) <1.2• Market Cap < $5 billion

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Finding Your GARP Strategy• I approach investing in a manner where I want to find not so

obvious mispricing. • Looking for catalysts that will impact growth and risk profiles so that

will change the perception of what a “reasonable” price should be.• Catalysts

• Reduce leverage• Margin expansion• Finding new revenue for a mature legacy product• Acquisitions• Reduce customer concentration• New management

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My Mispricing Scenarios

A stock of a profitable company being priced as a boring “out of favor stock” that is about to receive an expansion in its valuation multiples due to certain catalysts leading to a period of sustained EPS growth. It’s a plus If they pay fat dividends.

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My Mispricing Scenarios

A stock that looks overpriced due to losses or meager profitability that is being ignored by investors but is about to experience profitable growth or a return to profitability due to certain catalysts leading to a period of sustained EPS growth.

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My Mispricing Scenarios• The key to these two scenarios is that they tend to

take investors by surprise and lead to a string of profitable quarters of growth, paving the way for multi-bagger moves since the mispricing can be severe.

• Basically I am trying to catch mispricing right before the meat of a new growth cycle to capture outsized returns

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My Mispricing Scenarios

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My Mispricing Scenarios

A stock that is severely underpriced on current and future EPS but is ignored.

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GeoInvesting – Micro-cap Space is Thawing

• Global chaos is good for micro-caps

• Interest rates rising will impact balance sheets of larger companies more than home-grown micro-caps

• Micro-cap participation finally seems broader

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Reversion To The Mean

 “Market reversion is painful at first, but should lead to a scenario where active management and stock picking become important again.  Over the last several years, 

value had taken a back seat to hype, leading to an overvaluation of ‘story stocks’ and ridiculous 

undervaluation of ‘boring’ stocks. At some point value will matter again.”

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Micro-cap Investing Does Work

• Over half of top ideas + contributor ideas, have risen by more than 50%

• U.S. micro-cap GeoInvesting top ideas + contributor ideas that more than doubled – 50

• Number of GeoInvesting ideas that have been acquired – 40+

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GeoInvesting

• We offer a lot of great free content• Premium Promo code: CANADA6• Premium Promo code: CANADA12