There’s a certain Hollywood mystique around the image of the rogue investor with the fortitude to diverge from the crowd on the quest for The Next Great Investment. The un-glamorous truth, of course, is that unearthing hidden opportunities actually takes equal parts elbow grease and know-how. Par Rostom, portfolio manager and vice president of Franklin Equity Group®, is that
roll-up-the-sleeves kind of guy. He’s not looking to invest in companies just because they are household names with splashy advertising campaigns. The companies he hunts for are the ones he feels are “best in class” in their particular niche, but that you’ve probably never heard of. Surprisingly, he’s finding some of them in the eurozone, a place the crowd is largely avoiding today. Here’s a summary of his approach, in his words:
- We’re looking for companies that grow sustainably in terms of free cash flow over time.
- We look at the returns profile for a company historically, and we project that out three to five years.
- We also make sure that we would view the corporate governance as best in class.
- A concentrated portfolio allows our analysts to focus…it allows us to take advantage of transient dislocations.
As global markets are roiled by some serious concerns, we at Beyond Bulls & Bears feel it’s a valuable time to take a deep breath and reflect on the sources of potential. After all, the late, great Sir John Templeton believed that for the astute and patient investor, times of maximum pessimism could yield great values. We caught up recently with Research Analyst and Portfolio Manager with Franklin Equity Group, Par Rostom, to discuss the strategies he’s employing to find value.
Beyond Bulls & Bears: You and your team focus on non-US, mid- to large-cap companies with long-term growth potential. What kind of growth potential are you seeing in that segment of the market today?
Par Rostom: We are seeing some pretty good potential in companies earlier in their life-cycle of growth. These companies have focused business models with generally one or two business lines. Our strategy reflects a barbell approach of investing in higher and medium growth companies. The higher-growth companies on one end of the barbell may have more volatile growth from year to year, and the medium-growth companies on the other end of the barbell usually have a steadier growth outlook. Read more…