Strategy & economics
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
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.
Dominic joined in 2010. He is a Portfolio Director and jointly runs the stock selection process. He graduated from Durham University in 1996, after which he began his career in the corporate finance department of Salomon Brothers. He then spent 10 years working for Taylor Young Investment Management, managing a UK Growth OEIC which was ranked top quartile over his tenure. From 2007 to 2010 Dominic worked with the private client team at Merrill Lynch. He is a member of the Chartered Institute for Securities and Investments and the Society of Technical Analysts. Dominic has 20 years of investment experience.
This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.