One stock I hold, American Capital, fell on my radar when I found out that John Paulson was selling it like crazy. For a billionaire hedge fund manager like himself, selling a stock isn’t easy. He has to think about selling slowly, so as not to crowd out the market with his selling pressure.
Key point: institutional investors move markets when they make moves. You and I don’t, unless we’re investing in thinly-traded micro caps.
Wall Street Roadshows
I’m starting to think there’s a good qualitative way to find great stocks – look for the companies that are the subject of many different conferences.
American Capital (ACAS) – a stock pick for 2013 – has been on a tear ever since presenting at the Citigroup US Financial Services Conference. There they were able to explain what it is that they do in front of a variety of debt and equity analysts. Basically, they could sell their valuation to people that were part of the decision-making process to buy or sell their shares.
Another stock I used to own, Metropolitan Health Networks (A stock pick from 2010, bought out by Humana in 2012), went to a bazillion different conferences for companies in the health care insurance space. In doing so, the company’s competitive edge – managing to reduce the cost of care for insurance companies in Medicaid/Medicare – was sold over and over to health care analysts. After several conferences, they got a buyout bid from their number one client, Humana.
Too Many Stocks
Really, there are too many stocks for any analyst or team of analysts to know of all of them. Those that promote themselves may be better bets than those that don’t, at least so far as a catalyst goes. A cheap stock stays cheap. A cheap stock selling itself to the institutional world doesn’t stay cheap for very long.
Purely anecdotal evidence leads me to believe that companies which attend various conferences with analysts will outperform those that do not due solely to the fact it takes less time for them to realize their true value. If a company is 50% undervalued and it becomes fully-valued in a year, investors generate a 100% return in one year. If it takes 10 years to reach full value, investors earn a compounded return of 7.2% per year, assuming no change in the valuation from year 1 to 10.
As an ACAS shareholder, I’m happy with recent performance. Obviously this bull market doesn’t hurt, but the company’s continued roadshow with analysts has to be helping, too.
Just a thought for today. Perhaps the best stocks for retail investors like us as those that are selling themselves to institutionals, and doing it often.