Picking stocks amid disruption

The world is constantly changing but at Cazenove Capital we have a tried and tested way of identifying the most promising companies

09 Feb 2018

Dominic Liversedge

Dominic Liversedge

Portfolio Director

In today’s world every industry is being disrupted by new technologies: apps that can automate complex tasks, cut out the middleman and give the consumer more for less.

For investors the pace of change has been bewildering and many have found it difficult to know where best to invest their money. Our stock picking process has been designed to help us to recognise the longer term trends, and to focus on what matters most to our clients and their portfolios: to generate returns ahead of inflation.

Our team find the answers to the following questions to identify those companies with right ingredients to thrive:

Does the company have a high barrier to entry?
Any characteristic that is hard to replicate is its competitive advantage.

Does the company actually make money after meeting all its cost requirements?
Without cash, it’s tough to develop new products, make acquisitions, pay dividends and reduce debt.

Are profit margins sustainable?
Margin stability gives many clues as to the pricing power of their goods or services, their relationship with suppliers, and how susceptible they may be to the economic cycle.

Has the company avoided excess debt?
We prefer to see a small amount of debt so that earnings growth is being generated from shareholders’ equity as opposed to borrowed money.

Has the company been a good steward of shareholders capital?
A well-entrenched culture of rewarding shareholders with a cash dividend ensures that any capital allocation decision is made in shareholders’ best interests.

At a time of such fundamental change our ability to find the answers to these questions helps us to navigate the changing environment brought about by technology and benefit from the opportunities it creates.

Author

Dominic Liversedge

Dominic Liversedge

Portfolio Director

Dominic is a Portfolio Director and co-heads the direct equity investment team. Dominic spent the first nine years of his career at Taylor Young Investment Management, followed by four years at Merrill Lynch Portfolio Managers, joining Schroders in 2010. Dominic graduated from Durham University in 1996. He is a member of the Chartered Institute for Securities and Investments and the Society of Technical Analysts. Dominic has 23 years of investment experience.

 

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