CONTRIBUTORS
Warren Pustam
Portfolio Manager, Research Analyst, Templeton Global Equity Group
Preview
Search for bargains among quality stocks…whenever you can buy a large amount of future earnings power for a low price, you have made a good investment.”
Key takeaways
- At Templeton Global Equity Group (TGEG), we firmly believe investing in high-quality companies that we consider attractively valued relative to their long-term fundamentals and future earnings power may unlock enhanced total return over the long term.
- While other investment styles may outperform over a short period of time, we believe a focus on quality value is key to building a portfolio of favorably priced quality stocks that can sustain high return on capital throughout the business and market cycle. In our opinion, this should anchor the portfolio for consistent results over a multi-year holding period.
- The discovery of quality value is a dynamic process. We apply discipline via our three pillar investing framework: identifying companies using our quality filters—such as industry factors, financial stability and management effectiveness; assessing where these selected companies are positioned within their quality lifecycle; and investing with discipline based on intrinsic value of a company versus its price.
TGEG founder, Sir John Templeton’s tenets on quality stock investing1 continue to ring true, in our view. At the Templeton Global Equity Group, we firmly believe investing in high-quality companies that we consider attractively valued relative to their future earnings power may unlock enhanced total return over the long term.
The discovery of quality at sensible prices is a highly dynamic process. In this paper, we discuss the following characteristics:
- Major forces that drive investment opportunities over a multi-year cycle.
- Industry factors such as a strong market position and high barriers of entry.
- Business model with healthy customer dynamics, high cash margins and low capital intensity.
- Financial stability underpinned by a self-sufficient funding profile and quality earnings.
- Management with a sound strategy, execution, track record and shareholder-friendly capital allocation.
As we look for companies that best meet our quality criteria, it is our ability to further apply our proprietary lifecycle analysis and Templeton’s time-tested valuation discipline that set us apart from other quality-oriented asset managers, in our view.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks. There can be no assurance that multi-factor stock selection process will enhance performance. Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods.
Active management does not ensure gains or protect against market declines. The investment style may become out of favor, which may have a negative impact on performance.