Zulu Investing: Would Jim Slater buy these 5 growth stocks?

Wednesday, Nov 23 2011 by
Zulu Investing Would Jim Slater buy these 5 growth stocks

“Investment is the art of the specific and selection is far more important than timing.”

Of the stalwarts of stock market investing, Jim Slater’s enduring appeal to UK private investors perhaps owes the most to his obvious affection for high quality but not overpriced growth companies. For the former City corporate raider, broadsheet columnist and children’s author, growth companies require careful and considered selection. After all, while buying into a growth story at the right moment and at the right price is paramount, these are companies that an investor could conceivably keep in a portfolio for very many years – come bulls and bears.

Never short of a forthright view and always amenable to sharing his views on stocks, Slater’s 1992 book The Zulu Principle has gone on to become a modern classic amongst private investors. In it, he not only sets out a carefully calibrated technique for measuring a company’s growth potential but he also encourages investors to do their own digging, to read between the lines and interpret information in a way that will give them an edge.

Start sieving

His approach starts by sieving the market for potential growth stock candidates and identifying which of them are attractively priced. The first hurdle for any company is ownership of a proven record of earnings per share (EPS) growth together with broker forecasts that the growth will continue by at least 15% over the next couple of years. “This gives you an arithmetical fix on the company,” Slater explains. Importantly, the stock must have four years of EPS growth – historic of forecast, or a combination of the two.

While scrutiny of past and future growth form the backbone of his screening technique, Slater’s commitment to the story behind a stock is what makes his approach intriguing to adopt. Investors are urged to scrutinise companies and filter the basket using a common sense set of criteria.

For instance, small, profitable companies with strong cashflow and low debt and signs of strength in their shares are important, while sectors that are less susceptible to cyclical patterns are preferred. Meanwhile, a competitive advantage, strong management and signs of optimism in the chairman’s statement are all pluses. Finally, a critical moment, such as a new CEO, as well as directors buying shares are also on the checklist.

PEG formula

On passing…

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Globo Plc is a United Kingdom-based company engaged in providing enterprise mobility management and mobile application development platforms and services, in addition to consumer mobility solutions. The Company’s GO!Enterprise (EMM) and GO!AppZone (MADP) offerings help businesses expand their engagement with employees and customers through the mobile channel via a secure and extensible environment that runs on all smart devices. EMM supports secure employee centric bring your own device (BYOD) implementations and reduces the total cost of ownership of implementing multiple point solutions. The Company operates internationally through subsidiaries and offices in the United States, the United Kingdom, Europe, Middle East and South East Asia. more »

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Next Fifteen Communications Group plc is a United Kingdom-based digital communications company. The Company consists of over 10 subsidiary agencies, spanning digital content, marketing, public relation, consumer, technology, marketing software, market research, public affairs and policy communications. Its segments are UK, Europe & Africa, US and Asia Pacific. Its businesses include over five independent communications brands, with approximately three specializing in the technology sector and approximately two in the consumer space. Its agencies focus on digital (Beyond, bDA and Connections Media), a business-to-business (B2B) marketing agency (Twogether), a programmatic advertising technology business (Encore), a market research company (Morar), a digital content marketing agency (Story), a policy communications firm (Vrge), a creative agency (ODD London), a B2B technical marketing communications agency (Publitek) and an investor relations consultancy (The Blueshirt Group). more »

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First Derivatives plc (FD) is engaged in is the provision of a range of software and consulting services to finance, technology and energy organizations. The Company operates in two segments: Consulting activities segment, which includes services to capital markets, and Software activities segment, which includes the sale of intellectual property and related services. It scopes, designs, develops, implements and supports a range of data and trading systems across front, middle and back-office operations. Its products include Delta Flow, Delta Flow+, Delta Stream, Delta Surveillance, Data as a Service, Delta Algo, Delta Data Factory, Delta Dashboards, Delta Monitoring and Delta Control. Its consulting services include Capital market consulting, multi-vendor services, murex services and tools, calypso tools and services, and legal, regulatory and compliance services, among others. Its subsidiaries include Market Resource Partners LLC and Reference Data Factory LLC, among others. more »

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  Is Globo fundamentally strong or weak? Find out More »

3 Comments on this Article show/hide all

Tommy Rock 26th Nov '11 1 of 3

This view on IDS systems completely fails to understand the diagnostics market and shows the dangers of basing opinions on meaningless financial statements from self interested board members. Actually this company is extremely exposed to competition from Diasorin and Siemens both of whom have more advanced and attractive automated systems than the iSYS, a better test panel and much greater market penetration. The vast bulk of IDS income comes from vitamin D kit sales, a position which will be drastically eroded as Diasorin, Siemens, Roche and Abbots will pick up speed on their new kits. The major issue with iSYS is that is doesn't integrate with modern automated lab systems and has a none existent test panel, this leaves it isolated in the market.

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kevinsamvance 29th Nov '11 2 of 3

Don't forget Jim Slater also used three month, six month and 12 month Relative Strength as a signal to exit trades. On that basis he would not be holding GBO or IDH. SUN is doubtful but the other stocks pass the RS test.

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Tommy Rock 29th Nov '11 3 of 3

IDS £4.50 today down from £12 4 months ago!! well Jim, any suggestions?

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About Ben Hobson

Ben Hobson

Strategies Editor at Stockopedia. My goal is to help private investors learn and invest with confidence through the articles, ebooks and other resources we publish on site. I also occasionally bunk off to interview famous investors at expensive restaurants. I studied History at Aberystwyth University, trained as a journalist and covered business news and corporate finance before settling in as one of the first staff members at Stockopedia.  Away from Stockopedia I'm a mountain bike junkie. more »


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