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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Next Fifteen Communications Group plc is engaged in the communications business. The Company consists of approximately 20 subsidiary agencies, spanning digital content, marketing, public relation (PR), consumer, technology, marketing software, market research, public affairs and policy communications. Of the Company’s businesses, five are independent communications brands, with three specializing in the technology sector (Bite, Text 100 and The OutCast Agency) and two in the consumer space (Lexis and M Booth). The Company’s three agencies focuses 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 is engaged in the provision of a range of software and consulting services, particularly to finance, technology and energy organizations. The Company provides software solutions that address data challenges, particularly those involving large data volumes and streaming data, across a range of sectors. Its segments include Consulting activities, which include services to Capital Markets, and Software activities, which include the license of intellectual property and related services. Its products are built on kdb+, a time series database developed by the Company. Its software applications enable the real-time capture and analysis of market data. Its consulting customer base includes investment banks, brokers, exchanges, regulators and hedge funds. The Company's subsidiaries include Activate Clients Limited, Affinity Systems Limited, Cowrie Financial Limited and First Derivatives Canada Inc. more »

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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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