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Fundamental research is the central element of Shikiar’s
stock selection process. We carefully analyze a company’s balance sheet
strength, earnings outlook and cash flow generation before investing our
clients’ capital. To that end, the initial focus is on what we deem to be
significant measures of a company’s ongoing success: the generation of cash
earnings and free cash flow. Free cash flow enables a company to reinvest in
its core business, pay down debt, make intelligent acquisitions, increase
dividends and/or buy back company stock without over-leveraging the balance
sheet. It also ensures that the company will be able to continue to grow
without the need to frequently access the capital markets for financing.
Setting this standard of positive free cash flow and cash earnings for most
of the companies within our investable universe allows us to focus on many
other aspects of a company’s business that complement the ability to generate
free cash flow. Shikiar portfolios typically include companies with the
following characteristics:
•Proven management ability to enhance
shareholder value
•Meaningful market share and a sustainable
competitive advantage
•Strong balance sheet
•Attractive operating margins and return-on-equity
•Manageable debt-to-capital ratio
•Significant insider ownership
•Brand recognition
•Global presence
•Management highly cognizant of the relevance of
high standards of corporate governance and ethics
•Stock which trades at a discount to our perceived
intrinsic value
In addition to analyzing companies’ public filings with the SEC as well as
their quarterly and annual reports, Shikiar also leverages data and information
sources provided by many of the major Wall Street investment banks. Through
extensive industry contacts, as well as the firm’s information technology
systems, the portfolio managers are fully apprised of current Wall Street
views and opinions. While our own analysis and opinions will at times differ
from those of Wall Street analysts, it is precisely this independent thought
that, we believe, leads to superior investment results.
Complementing our in-depth balance sheet, cash flow and industry analysis is
our location in midtown Manhattan, which affords us the opportunity to meet
with the management of scores of companies who present at various conferences
every year. It is this access to, and knowledge of, company managements,
coupled with our depth of investment experience, that offers an important
advantage to our clients.
A typical portfolio will often contain between 20 and 30 companies, providing
a well-diversified portfolio representing a cross section of the economy,
while allowing ample concentration in those companies that offer the greatest
long-term appreciation potential. We anticipate our target holding period to
be measured in years rather than months, which affords clients the
compounding of returns as well as a greater degree of tax efficiency.
We will remain committed to companies as long as their long-term fundamentals
remain positive and we believe that their value is not yet fully reflected in
their stock price. We will typically reduce or sell a position when: our most
optimistic expectations are exceeded; to take advantage of a better
opportunity; or when our fundamental expectations fail to materialize.
It is a strict adherence to our investment process that allows Shikiar to
consistently execute on its straightforward investment philosophy. We
continue to believe this is the most fiscally responsible manner in which to
position our clients’ capital for conservative long-term growth.
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