Three Ideas with 50% Upside

Paul Condrat of Davidson Multi-Cap Equity Fund, can look at companies small to large, and from value to growth, to find long-term opportunities where he sees 50% upside over the next three to five years. Here, he discusses his go-anywhere strategy and highlights three favorite stocks—an automaker, a telecom play, and a retailer.

Steve Halpern: Joining us today is Paul Condrat, portfolio manager of the Montana-based Davidson Multi-Cap Equity Fund (US:DFMAX). How are you doing today, Paul?

Paul Condrat: Great, Steven, thank you.

Steve Halpern: Well, thank you for joining us. First, can you tell our listeners about the Davidson Multi-Cap Equity Fund, and particularly highlight what types of investments you look for in the fund.

Paul Condrat: Sure, well, our Multi-Cap Equity Fund is an all-cap US domestic strategy and what we think is a big advantage for us is being an all-cap strategy.

We have the flexibility to go, really, anywhere in the market where we're seeing the greatest opportunity, so, for us, it doesn't matter if it's a large-cap growth company or a small-cap value.

What we try to think about is, if we have a dollar today, where is the best place to invest that dollar over the next three to five years on a risk-adjusted basis, so, that's kind of how we think about positioning things and changing the characteristics of the portfolio based upon where we see the greatest opportunity.

The criteria that we basically use is from a high level. We're thinking about investments in a couple ways. First of all, we're looking for any new investment in the portfolio that has, at least, a 50% upside over a three to five-year timeframe and we think that's an appropriate level of return for us being longer-term investors and we are longer-term investors. Our turnover has been about 20%, so we think that's a good rate of return to expect.

Secondly, we're looking for companies with identifiable growth drivers or catalysts and that can be anything from a new management team, new product cycle, expansion in new market, but we want to be able to identify those factors from the very beginning.

Third, expanding profit margins. We're attracted to companies that have that ability to expand profit margins over time and if it's at peak margins, we're just going to be a little more skeptical about it.

Then, lastly, companies with good balance sheet flexibility, so, as the market environment changes, the company has the ability to come in and increase the dividend, do a buyback, or make that strategic acquisition and not be constrained by their balance sheet.

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