Four growth stocks that may have caught Philip Fisher's eye

Monday, Nov 05 2012 by
6
Four growth stocks that may have caught Philip Fishers eye

When Philip Fisher wrote Common Stocks and Uncommon Profits in 1958, he documented a now famous approach to growth investing. His focus on robust management and strong company growth prospects has proved to be a lucrative blend. It has also proved an inspiration to his peers, including Warren Buffett. Fisher’s legacy is a powerful approach that continues to produce strong stockmarket returns. So far in 2012 Stockopedia’s interpretation of his strategy has been among the best performing growth investing screens, with a 24.8% return versus 9.4% for the FTSE 100. According to AAII, stocks passing their interpretation of the Fisher screen tracked between January 1998 and August 2008, produced an astonishing cumulative return of 133.5%, versus 32.2% for the S&P 500. 

Recently we took a closer look at how Fisher’s approach to growth investing works. At its heart is a 15-point list of demanding buy criteria that mixes quantitative and qualitative analysis with a focus on exploring each stock’s potential to grow. In his book, Fisher insisted that the best time to sell a stock that had met these criteria was “almost never” provided the investor’s assessment of the company was accurate. 

Management integrity & growth characteristics 

Fisher's whole approach is based on the idea of “scuttlebutt”, or looking beyond simple financial statements to pull together all sorts of information about a stock in order to get a detailed view of it. The points he looked for can be split up into two categories: 

1. Management Qualities - He looked for depth, integrity, transparency, a long-term outlook, good staff relations and excellent financial controls. 

2. Business Characteristics - He looked for business characteristics that would support sustainable growth, namely a strong sales function, products or services with sufficient market potential, a commitment to ongoing product development through R&D and outstanding competitive positioning.  

He was also most comfortable when investing in large manufacturing companies that had a scientific element to them. 

Spirit of Fisher 

As with any quant screen approach, Stockopedia’s version of the Fisher screen inevitably has a numerical bias, focusing on key growth and quality ratios like sales growth, high margins and a compelling price/earnings growth rate (PEG). There are currently 22 stocks on the screen from a broad range of sectors. 

However, Fisher was not simply a ‘paint by numbers’ style investor so to try and get closer to the spirit of his qualitative approach, we have selected a handful of the stocks that seem most likely to have caught his attention. 

Among the industrial companies qualifying for the screen is Weir (LON:WEIR), the engineering group that works in the minerals, oil & gas and power markets. Shares in Weir were knocked during the market-wide collapse in September 2008 but they rebounded quickly and have since soared – rising from 780p to 1877p since the start of 2010. In 2011, the group achieved its plan of doubling 2009 profits – three years earlier than it originally expected. In part, this growth rate is down to generally strong conditions in its end markets. While it isn’t immune from uncertainty in some markets, Weir’s diversified operations appear to offer a degree of comfort. 

Another stock gracing the screen is BTG (LON:BTG), the FTSE 250 pharma group, which has been attracting forecast upgrades from brokers recently. BTG is due to publish its interim figures within days, however, last year’s numbers saw some substantial revenue and profit uplift as a result of a strategy to begin direct sales of its treatments in the US. Fisher would have liked that focus on sales. His interest in R&D development (BTG claims a decent pipeline of potential new products) and strong profit margins, also go in the company’s favour. BTG’s P/E ratio of 27.3 is well above average for the sector, but that wouldn’t necessarily have deterred Fisher who tended to prioritise growth potential over price. 

Among the largest companies qualifying for the Fisher screen (the largest is telecoms giant Vodafone) is oilfield services group Petrofac (LON:PFC). Petrofac is involved in delivering oil and gas projects all over the world and had an order backlog at the end of September of US$9.4 billion. The company’s five-year growth indicators are well above average and despite its size it has set out a medium-term strategy of more than doubling recurring 2010 group earnings by 2015. In 2012 net profits are expected to grow by at least 15%. As an aside, income investors might also be interested to see that Petrofac has a strong and well-covered dividend growth record although this was not a key focus for Fisher. 

Finally, at the smaller end of the spectrum, AIM-quoted Advanced Medical Solutions (LON:AMS) also makes it on to the Fisher screen thanks to its impressive growth record. AMS is a woundcare specialist with products including LiquiBand, which is growing its market share in the US, and ActivHeal, which is performing strongly in the UK. The company also claims to have a number of developments in its R&D pipeline. The shares jumped from 27p in November 2009 to a high of over 93p at the start of 2012. The price has since slipped but AMS’s confidence about the future appears to be fully intact. 

Going for growth 

Fisher’s focus on future growth proved to be a successful approach for his clients during his years as an investment manager. While synthesising all of his qualitative requirements in a quant screen is probably impossible, looking for companies with strong growth records has nevertheless produced a strategy that has trounced the market in the year to date.

While not all the companies on this screen conform to Fisher’s preferred sector focus, we've highlighted a few companies above that feel most Fisher-esque to us and it will be interesting to see how their performance compares to the screen overall (better or worse!). Of course, the always advisable instruction to DYOR (do your own research) is especially relevant  in this case, given the number of soft qualitative factors in the Fisher checklist. We welcome any comments on these highlighted stocks (or the overall Fisher list) below. 

As a reminder, you can sign up for a two week trial of the Stockopedia Premium stock screener and toolkit here.

There's value in the stock market but do you know where to look?

Get the most concise synopsis of everything that's been proven to work in value investing. If you like your stocks cheap you've found a treasure trove distilled to under 70 pages.

  • How to find ultimate Bargain Stocks with Ben Graham
  • How to spot Turnarounds and avoid Value Traps
  • From Graham to Greenblatt via Piotroski & Lakonishok
  • How to value stocks and set a margin of safety

Soon to be retailing for an RRP of £14.99, for a limited time only,
you can get your copy free by joining our 35,000 strong mailing list.

*By signing up you'll be joining our mailing list
no junk, no spam - just great content like this example.


Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


Do you like this Post?
Yes
No
6 thumbs up
0 thumbs down
Share this post with friends



The Weir Group PLC is engaged in engineering businesses. The Company operates in three business segments: Minerals, Oil & Gas and Power & Industrial. The Company's Minerals segment is engaged in the provision of slurry handling equipment and associated aftermarket support for abrasive high wear applications used in the mining and oil sands markets. Its Oil & Gas segment is engaged in designing, manufacturing and supporting products used in the upstream pressure pumping, upstream pressure control and downstream refining operations. It provides products and service solutions to upstream, production, transportation, refining and related industries. Its Power & Industrial segment designs and manufactures valves, pumps and turbines, as well as providing specialist support services to the power generation, industrial and oil and gas sectors. Its brands include Warman, GEHO, Linatex, Vulco, Cavex, Enduron, Trio, SPM, Seaboard, Mathena, Hopkinsons, Atwood & Morrill, and others. more »

Share Price (Full)
1542p
Change
-0.8%
Mkt Cap (£m)
3,327
P/E (fwd)
15.3
Yield (fwd)
3.0

BTG plc is a specialist healthcare company. The Company operates in three business segments: Interventional Medicine (IM) (oncology, vascular and pulmonology products), Specialty Pharmaceuticals (antidote products) and Licensing (royalties from licensed assets). The Company's Interventional Medicine segment offers a portfolio of interventional medicine products that are designed to advance the treatment of liver tumors, advanced emphysema, severe blood clots and varicose veins. The Company's Specialty Pharmaceuticals segment offers a portfolio of antidote products that alleviate toxicity and treat rare conditions. The Company's Licensing segment receives royalties relating to the sales of products that are subject to intellectual property and license agreements between the Company and various partners. The Company's subsidiaries include BTG International (Holdings) Ltd, Provensis Ltd, BTG International Ltd and BTG Employee Share Schemes Ltd, among others. more »

Share Price (Full)
651p
Change
-0.1%
Mkt Cap (£m)
2,494
P/E (fwd)
28.7
Yield (fwd)
n/a

Petrofac Limited is an international service provider to the oil and gas production and processing industry, with a diverse client portfolio, including various integrated, independent and national oil and gas companies. The Company operates in four segments: Onshore Engineering & Construction, which delivers onshore engineering, procurement and construction (EPC) to onshore oil and gas projects; Offshore Projects & Operations, which includes its Offshore Capital Projects service line, specializes in both offshore engineering and construction services, for greenfield and brownfield projects, and the provision of operations and maintenance support, onshore and offshore; Engineering & Consulting Services, which provides engineering services across the life cycle of oil and gas assets, and Integrated Energy Services, which provides an integrated service for hydrocarbon resource holders under commercial models that are aligned with their requirements. more »

Share Price (Full)
882.5p
Change
1.2%
Mkt Cap (£m)
3,016
P/E (fwd)
11.1
Yield (fwd)
4.6



  Is Weir fundamentally strong or weak? Find out More »


2 Comments on this Article show/hide all

StrollingMolby 6th Nov '12 1 of 2
1

Interesting to note that Weir (LON:WEIR) is the most shorted UK share (by aggregate disclosable positions) in today's FSA's short selling spreadsheet, at 9.06% of shares in issue. What are the hedgies seeing that the Fisher screen is not?

http://boards.fool.co.uk/short-positions-first-fsa-list-12677587.aspx

| Link | Share
Ben Hobson 8th Nov '12 2 of 2

Decent interim results from BTG - highest riser in the FTSE 250 today, up 7.57%

Investment Research: Stockopedia
| Link | Share

What's your view on this article? Log In to Comment Now

You can track all @StockoChat comments via Twitter


About Ben Hobson

Ben Hobson

Strategies Editor at Stockopedia. Writer, Editor & Investment Strategies Analysis. Test driving and telling the world about the awesome stock market investing tools and resources at Stockopedia. Helping Stockopedia subscribers take control, invest with confidence, beat the market and sleep soundly at night. more »

Follow



Stock Picking Tutorial Centre



Stock Picking Simplified

Stockopedia takes your stock picking to the next level with cutting edge Stock Reports & Screening tools.


Get started
or Take a Tour to find out more.
Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis
Foliobuilder