Portfolio Insights: Alger Weatherbie Specialized Growth
George Dai (continued): In February and in March, we did a thorough liquidity analysis of the balance sheet of all of our holdings. We reduced the weightings of companies, which were unprofitable and had high leverage – a lot of debt. These companies wouldn't do well when the whole country and the whole world was under a lot of pressure. Then the U.S. federal government actually took a lot of action stimulating the economy with both fiscal and monetary stimulus. We then made two offensive moves in April and May and the subsequent weeks and months. We believe we significantly upgraded the quality of our portfolio by putting more capital into our highest conviction names. These are companies with the strong competitive positions, with strong balance sheets, with strong growth potentials, and typically these companies would recover more significantly and faster than their peers. The second offensive move that we made is we took advantage of the market sell off by buying some high quality new names that were “on sale” in our opinion. A combination of these activities, which were conducted very methodically and thoughtfully, helped us to navigate the crisis relatively better than others and the result was our strong performance. Tyler Foster: Very good. And job well done to you and the team as well. If you wouldn't mind, we would like to take a pause here and see if we have any questions from the audience. Speaker Question: Where do you see the most growth coming from within the sectors that you've been emphasizing? That's question number one. Number two is would you name a couple of names within your portfolio and the investment rationale briefly? George Dai: Absolutely. In terms of the growth and where we see the most – we see lots of growth in traditional technology and health care areas. These are the areas that we do very well, but some of our competitors also do quite well. These are the traditional areas that we do find a lot of opportunity. Now on top of that, we also see lots of growth and actually sometimes even more stable growth, meaning with less volatility and downsized risks, in the areas that often are not being studied by our peers. A few
examples would be – let's say real estate residential services companies like FirstService Corp. It is a leader in its space and it is several times bigger than its competitors. It manages all of the mundane but necessary services of a community, such as lawn mowing, pool cleaning, security. This kind of company sounds boring; however, it's a very stable and growing with organic growth in the mid- single digits. In fact the company has had compounded growth for several decades in the 20% range in EPS. In this current economic environment we see lots of growth across the board. And so what differentiates us vis-à-vis a lot of our peers is our hunting ground is a lot broader. We are not just restricted to health care and technology. I can provide you with a few names and the rational. FirstService is one that I like to discuss. The other example I like to use is Chegg. This is one of our top names. It bridges the traditional mundane that the Street calls educational servicing industry, which grows at less than the GDP rate, and technology. The mundane industry of education is being transformed by Chegg because they were initially just a textbook rental company and that was not all that attractive of business. They have now transformed this business into a business that's focused on digital study service tools and they now dominate that market. And all of this is being designed and delivered through the internet. As such, this company is now more viewed as a technology company. And it's actually in a boring industry for educational service but it is growing like a high-tech company, which the top-line is 30% to 50% year-over-year growth. So that represents a theme in a lot of our holdings. A company using technology to deliver more value at a lower cost to their clients and in often times mundane industries. Tyler Foster: All right we'll again open it back up to questions in a moment. But we had a couple other things we were hoping to make sure to touch on. George, how do you and the team assess valuations for the companies you cover? How does valuation factor into your investment process? And are there certain metrics you prefer over others?
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