“The vagaries of the market often serve to create fairly substantial compressions and expansions of business valuations.” – Brian Barish, President and Director of Research.
Cambiar employs a disciplined investment process that attempts to identify companies that are trading at the lower end of their long-term valuation range, yet possess the potential for outsized returns over a forward 1-2 year time horizon.
With regards to valuation, the Cambiar investment team will tend to use conventional financial measures, such as Price/Earnings, Price/Book Value, etc… On occasion, we may also use metrics such as replacement value or a Net Asset Value (NAV) calculation if such measures are more appropriate for that industry. An underlying premise of the Cambiar philosophy is that certain industries tend to follow certain valuation ranges; the market does not randomly value stocks. Given our more conservative investment stance, we tend to be highly skeptical of ‘new paradigm’ industry valuations.
While we do not attempt to buy stocks at the exact bottom, we do look for certain characteristics that can provide valuation support; such criteria include strong financials, a leading position in their industry, and a competent management team that has a constructive relationship with their public shareholders.
The next component of the investment process is to identify some type of fundamental positive development that can change the market’s current negative perception of the company. Such catalysts may come in varying forms; examples include: new product introductions, managerial changes, divestiture of an underperforming division, or simply better financial performance. Valuation in and of itself is not a catalyst – there must be some identifiable event that will cause investors to reassess the business and award it a higher valuation.
The result is a portfolio of high-potential, low expectation companies that we believe should be able to outperform regardless of the current investment climate.
