GPM Grade Companies - Selection Criteria
Our client portfolios are actively managed.
Our GPM Grade Stock strategy is straight-forward. We directly own approximately 30 individual stocks of high quality, industry-leading U.S. companies that compete and win around the world. We focus on high ROE businesses with track records of delivering rewarding long-term growth in sales, earnings, cash flow, dividends, and ultimately stock prices. Our companies are built to adapt and thrive while generating growth in value and income for shareholders. Our approach gives us confidence to ride out market pullbacks and is well understood by our clients, who share our long-term view.
We eat what we cook every day. Members of the GPM team invest in our focus list stocks alongside our clients. GPM's founder and lead manager, Tim Griffin normally owns all of our focus list stocks and other model securities that are held in client portfolios.
GPM pursues a growth at a reasonable price (GARP) approach to investing. We like well-run leaders and niche businesses that generate superior sales and earnings growth. We also favor companies that have a history of making smart strategic acquisitions and those that may be attractive acquisition candidates themselves. We look for fundamental changes or "catalysts" that can lead to an increase in the level of attention given to a stock.
Acquisition candidates will normally meet most of the following criteria:
• Proven, credible, and innovative management team
• Durable portfolio of products that build customer loyalty
• High ROE (mid-teens+), ROA, ROC, and ROI; exceptions can be made for banks and other special situations
• Predictable and sustainable growth in revenue, earnings, and cash flow
• Strong balance sheet with undervalued assets and/or hidden value
• Good near-term business visibility or be priced to more than adequately discount near-term uncertainty
• Relatively inexpensive to reasonably valued based on multiple fundamental metrics
• Undervalued on the basis of price/net cash flow
• Manageable capital expenditures, acquisition plans, and future capital needs
The underlying business value is substantially greater than the current share price and is growing. We develop our best understanding of the short and long term growth prospects relative to peer group companies and estimate a reasonable value of the entire business. Our analysis should provide reasons to expect the share price to materially appreciate within two years of purchase.
Substantial "insider" stock ownership by management, directors, and others close to the company. We keep a close eye on insider trading activity.