Mark Slater backs Growth Stocks.... at a Price

Saturday, Apr 16 2011 by
13
Mark Slater backs Growth Stocks at a Price

Most investors go to the Master Investor conference to come away with some stock ideas which is precisely why the best attended speech today was by Mark Slater. While some of the speakers at the show have mixed agendas, Slater is a classic growth company investor and speaks about his stock picks with the same integrity and assuredness as his famous father Jim. It’s a style that has made the pair strong favourites amongst private investors and while he couldn’t attend the show in person, his pre-recorded presentation didn’t disappoint.

The Slater family champion a set of strict growth investment criteria focused around the PEG ratio - the goal being to buy strong, cash generative growth companies at reasonable valuations. These criteria haven’t really changed since they were delineated in Jim Slater’s very popular book ‘The Zulu Principle’ in the early 1990s and both Slaters continue to preach from that script.

Mark actually helped his father research the Zulu Principle books and invests his extremely successful fund, MFM Slater Growth, very much according to that set of criteria. While he has been known to take advantage of special situations at opportunistic moments such as at the 2009 market lows he currently sees little value in asset plays or recovery situations in the current market, only highlighting 21st Century Group as detailed below. Today he’s focused on buying classic Zulu Principle growth stocks at reasonable valuations - a strategy that he’s shown in practice has a tremendous track record for market beating returns.


Market Outlook

Slater is not as worried about the market as he was a few months ago noting that all investors have been very focused on the big picture issues at large for some time. He maintains that equities are reasonable value and that they are ‘by far the most attractive asset class’. But he cautioned that with the ongoing deleveraging of the consumer and increased tax cost to society that investors have to remain cautious and avoid the worst impacted sectors.

 

Investment Process

He discussed his investment methodology which essentially boils down to a three step process.

  • Quantitative Screening Screening the market with the now familiar set of criteria. A PEG < 1, consistent EPS Growth and Cashflow > EPS. Perhaps stemming from his practice of investing larger sums of money in an institutional setting, he is more cautious about using momentum and relative strength as a primary criteria and won’t chase momentum.
  • Qualitative Factors With the stocks that result from that quantitative search, the team further filter the results based on more qualitative factors, such as whether the company trades in a strong industry or has a good niche competitive advantage. They avoid highly rated stocks on a PE > 20, avoid anything with poor trading results and avoid any industries that are suffering from material structural concerns - retail being a prime example.
  • Portfolio Management Run your winners, and cut your losers - Slater is very comfortable with having concentrated positions in companies he likes. You have to back your best stocks. While an obvious investment maxim, it should be noted that in practice due to psychological and behavioural factors many investors often fall into the trap of doing precisely the reverse.

 

Stock Picks

It should be noted that Mark and Jim Slater have a terrific track record. Slater senior’s picks back at the Growth Company Investor show in September have performed admirably well and Mark Slaters MFM Slater Growth Trust is one of the best performing trusts in the past year. Here are my notes on his stock picks today.

Cape (LON:CIU) - While Cape has risen enormously from its bottom in 2009, its still only valued at 11 times earnings. With 15% eps growth likely for the next 5 years Slater quotes the management as saying that Cape is about to enjoy its ‘Golden Years’. In growth markets especially in the Pacific Rim and the UK government unlikely to ignore its nuclear decommissioning issues for long, Cape is well positioned. Cash generative and with debt all but paid down Slater named Cape as a top pick.

Entertainment One (LON:ETO) - Renowned as owning the commercial rights for Peppa Pig and the teen vampire franchise Twilight, ETO’s stock has had a great run over the last year. Benefiting from being Canada domiciled and enjoying a kind tax environment, the company is ‘well run with wonderful IP’. Peppa Pig is essentially a children’s phenomenon and ETO has recently done a deal with the US giant kids TV channel Nickelodeon to run the show on PrimeTime for the next 3 years. This is a fantastic launchpad for Peppa into the US market and Slater says the brokers have nothing for this deal in broker forecasts which anticipate 15% eps growth. He sees 30-50% as being more likely and thinks its cheap on a multiple of 11-12 times earnings.

 Special Offer: Invest like Buffett, Slater and Greenblatt. Click here for details »

Andor Technology (LON:AND) - High Spec cameras for the scientific markets, Andor was well highlighted by Jim Slater last September at the Growth Company Investor show. ‘Phenomenal track record’ of growing turnover on a 30% CAGR with new products and low forecasts, Slater sees the PE falling from 20 now to 14 times next year. He likes its ‘nichey’, cash generative business model.

Dialight (LON:DIA)  -  LED Products that Slater says benefit from being both green and saving customers money. The company has great operational gearing and he expects 25% p.a. growth for the next 5 years.

Oxford Instruments (LON:OXIG)  - Again, in a similar vein to Andor, he likes the model and picks it on a 17/18x PER.

21st Century - The only stock that Slater picked in the context of special situations rather than growth. He picked 21st Century as a £10m cap trading on a PER of 10 with lots of cash and property on the balance sheet being ignored by the market and £18m of revenue to boot.

All in all Slater gave the audience great value.

 




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Entertainment One Ltd is a independent entertainment group focused on the acquisition, production and distribution of film and television content rights across all media throughout the world. The Company operates in two segments: Film and Television. The Film segment includes revenues from all of the Company’s activities in relation to the acquisition and exploitation of film distribution rights (including those revenues earned through physical home entertainment sales, previously reported under a separate Distribution segment). The Television segment includes revenues from all of the Company’s content production activities, including the production of television and music content. In July 2014, Entertainment One Ltd acquired Paperny Entertainment Inc. In August 2014, Entertainment One Ltd completed the acquisition of the Paperny Entertainment group of companies. more »

Share Price (Full)
354.5p
Change
13.6  4.0%
P/E (fwd)
15.4
Yield (fwd)
0.5
Mkt Cap (£m)
1,000

Cape plc, provides a range of non-mechanical industrial services, principally to plant operators in the oil and gas, power generation, chemical, minerals and mining sectors and engineering and construction (E&C) contractors. The Company’s services include access systems, insulation, painting, coatings, blasting, industrial cleaning, training and assessment. In March 2014, Cape PLC acquired Motherwell Bridge, a provider of storage tanks, gasholders and heat exchangers to the energy and steel markets. more »

Share Price (Full)
311p
Change
12.5  4.2%
P/E (fwd)
10.0
Yield (fwd)
4.7
Mkt Cap (£m)
361.5

Andor Technology Ltd, formerly Andor Technology plc, is a United Kingdom-based company engaged in the development and manufacture of scientific digital cameras for academic, industrial and government applications. The Company operates in three segments: research, microscopy systems and original equipment manufacturing (OEM). Research is engaged in sales of cameras and associated products to academia and government-funded research institutes. Andor’s Microscopy Systems business provides high-end imaging solutions that are of primary interest to life sciences research institutes. Andor offers Electron Multiplying charge-coupled device (CCD) (EMCCD), scientific CMOS (sCMOS) and CCD imaging detectors. OEM includes sales of cameras and associated products to instrumentation manufacturers. In October 2013, Andor Technology Plc acquired Spectral Applied Research Inc. In October 2013, Andor Technology plc acquired Apogee Imaging Systems Inc. more »

Share Price (LSE)
n/a
Change
0.0  0.0%
P/E (fwd)
n/a
Yield (fwd)
n/a
Mkt Cap (£m)
n/a



  Is Entertainment One fundamentally strong or weak? Find out More »


10 Comments on this Article show/hide all

MrContrarian 18th Apr '11 1 of 10
7

I've set up a Master Investor 2011 tips tracker: http://www.freesharedata.com/mi2011

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Miae 19th Apr '11 2 of 10
2

I am new here but this article is very useful and helps me to understand quickly.

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Isaac 7th May '11 3 of 10
5

Cape (LON:CIU) - While Cape has risen enormously from its bottom in 2009, its still only valued at 11 times earnings. With 15% eps growth likely for the next 5 years Slater quotes the management as saying that Cape is about to enjoy its ‘Golden Years’. In growth markets especially in the Pacific Rim and the UK government unlikely to ignore its nuclear decommissioning issues for long, Cape is well positioned. Cash generative and with debt all but paid down Slater named Cape as a top pick.

Looks like Slater has been dumping his holding in Cape.

What is interesting is they talked up this stock in the conference a few weeks back. On the 12th April they published an RNS stating their holding had gone below 4% : http://www.investegate.co.uk/Article.aspx?id=201104121103227521E

Infact yesterday they released another RNS stating Slater has sold more shares and is now below 3% : http://www.investegate.co.uk/Article.aspx?id=201105061512071322G

Don't understand why a leading fund manager has talked up a stock in a big Investor conference and subsequently dumped the shares.

I don't hold any stocks tipped in the conference, quite why people think they can go to these conferences & take tips from these 'experts' to make money is beyond me.  

Buying on tips is a mugs game, Think for yourself and do your own research.

 

 

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marben100 7th May '11 4 of 10
1

In reply to Isaac, post #3

Don't understand why a leading fund manager has talked up a stock in a big Investor conference and subsequently dumped the shares.


Perhaps he sold for the same reason I sometimes reduce my holding in a company, even though I like their prospects: risk management.

Cape (LON:CIU) has risen strongly over the last year. Even after the recent sales, Slater's holding is still worth ~£13m. Perhaps, before reducing, that holding was uncomfortably large?

Nevertheless, I agree with you and don't like to see someone talking up a stock and selling shortly afterwards! The "optics" are not exactly good (unless he declared that he was reducing).

Mark

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thebuffoon 8th May '11 5 of 10

In reply to Isaac, post #3

I don't hold any stocks tipped in the conference, quite why people think they can go to these conferences & take tips from these 'experts' to make money is beyond me.

So, Isaac, why did you go; what did you get from going to the conference?

Buffy

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StrollingMolby 10th May '11 6 of 10
5

21st Century Technology (LON:C21) is proving to be Mark Slater's best tip of the Master Investor Show, up 22% since the tip. Worth remembering that Slater Investments has 15.3% of the co, whilst activist Peter Gyllenhammar's last reported holding was 29.5%.

With the unused Mitcham property up for sale and volumes up this week, there is certainly a feeling of value being outed here.

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Isaac 4th Aug '11 7 of 10

An example of why you should'nt buy stocks tipped in a big private investor show......especially so soon after the event.

Cape (LON:CIU) (chart posted doesn't work).


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Isaac 9th Nov '11 8 of 10
2

Well done Mark - Looks like you made a good move in selling your 11 times earnings. With 15% eps growth likely for the next 5 years......Thankfully I ignored your opinion. 

 

2 Year chart. Click to open a chart window
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Isaac 9th Nov '11 9 of 10

I honestly think there should be laws in place against prolific fund managers who go to Big Investor shows that talk up a stock such as CIU back In April to then reduce their holding from 7.7% in April to 4.7% last month.

I just think it is outrageous & it makes me really angry - I don't Invest on the back of these tips so I am not affected.

But i'm sure others have & I kinda feel sorry for these people as they have lost money.



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StrollingMolby 9th Nov '11 10 of 10
5

Isaac,

"I honestly think there should be laws in place against prolific fund managers who go to Big Investor shows that talk up a stock such as CIU back In April to then reduce their holding from 7.7% in April to 4.7% last month."

I don't see why there should be any obligation on a largeholder such as Mark Slater to hold onto a position following his comments at a conference. I've attended the last three of these shows and looked forward to hearing Slater explain his thinking and in particular his stock suggestions, which to be honest can be guessed fairly accurately because his funds' top tens are available online (& via regulatory announcements). In any event, he discloses that his funds hold, which you'd certainly wish for as demonstration of his conviction - and the event was seven months ago!

It's unreasonable to expect a fund manager to publicly state his views & put his reputation on the line at such an event, which are only his views at a snapshot in time, and then not react to events as they unfold, whether macro or micro to Cape in this instance. Do you not topslice your winners? He may well have built the position sub £1 so it's hardly surprising with the price falling back over the summer.

The fund factsheets are not available to retail investors but Top Tens can be seen on Trustnet to get a heads-up on new entrants if anyone wants to follow on his coat-tails:

http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=WXF98A

or look for news on a newswire:

http://www.investegate.co.uk/Index.aspx?searchtype=1&words=slater+investments

We're all big boys and should be capable of doing our own research, and in turn taking the rough with the smooth. And let's not forget that you are not paying him a fee for his ideas, so his duty of care is pretty limited!

SM

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