We often find good stories going around that may not be excellent businesses for the purists, but nevertheless keep posting good to great results marked by quarter on quarter improvements.
The businesses may be on the verge of a turnaround, or about to reach significant scale and make its presence felt in its niche, so (historical) numbers do not accurately reflect the changing dynamics of the business, and the larger market continues to ignore these - oftendue to legacy issues/perceptions (company/sector) or just underexposure!
But 6-9 months down the line, the sheer weight of performance - standout quarterly numbers )- often get them their due!
These are typical candidates where the performance and visibility into the immediate prospects are great leading to absolute undervaluation. (No relative valuation with respect to market or peers, or even historical valuation). Sheer undervaluation that just leaps out at you!Candidates that fit our Short Term Portfolio allocation philosophy. Candidates that potentially can give you a 50% upside within 6 -9 months, or less than a year.
Constructing a Short Term Portfolio may be very instructive for you to develop a capital allocation philosophy for yourself. Those interested can follow that discussion track in the Capital Allocation Framework thread. Some of us had been debating introduction of the Short Term Portfolio forum at ValuePickr (didn’t want core readership to feel we started encouraging trading strategies:-)).
Meanwhile **Indag Rubber **just ran away today, on the back of stupendous Q2 results!!. So no further delay, if some business is STANDING OUT, we better start allocating more energies to It!
A Short Term Portfolio will also force us to benchmark ourselves against high performance standards!