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Security Selection

Cardinal seeks companies that are inexpensive based on our detailed forecast of future cash flows. The process begins by finding stocks that we believe are mispriced due to market inefficiencies arising from market biases, information flows or business changes. Where we can identify a catalyst that will cause the market to recognize a stock’s value, we will assess whether the business model is stable and predictable and the company is generating excess cash flow. If both of these criteria are met, we then determine if the company’s management has a good record of operating the company and reinvesting its excess cash flow. Should this also be true, we will then build a detailed financial forecast of the company covering the next five-year period. We apply conservative assumptions and a high hurdle rate to the forecast in order to determine both a buy and sell price that enables us to achieve our high annualized target return.