Carl Marker knows the benefit of adding seasoning to a recipe. That’s what he does with $41.7 million IMS Capital Value Fund (IMSCX).
As a value-oriented investor, he looks for undervalued firms. But he doesn’t buy stocks at their bottoms. “Instead, I like to give them a seasoning period,” he said. “It’s usually 18 to 24 months after they suffer a significant decline. That’s time to solve the problems that caused their decline in the first place.”
A seasoning period gives stocks time to show other traits Marker wants. Key among those is positive momentum.
“I want companies with improving fundamentals,” he said. “So they need time to turn their ship around, increase sales, boost earnings and produce earnings surprises on the upside for a couple of quarters.”
On cost, the fund seeks stocks that are undervalued vs. the market, their industry and their history.
And the fund rates potential buys by various factors. For instance, it prefers firms whose customers have short repurchase cycles. It also looks for companies protected by barriers to competition and by immunity to product obsolescence.
Marvel Enterprises (MVL) shows the value of seasoning, Marker says.
The firm, which owns the rights to comic-book characters, came out of bankruptcy in 2000. It traded between 1 and 3 until November 2001.
Since then, it has been as powerful as its super heroes.
Marvel is also in the entertainment/leisure sector, an area Marker likes. “Other areas where we’re more likely to find positive momentum are technology, health, communications, financial services and consumer staples,” he said.
The fund avoids transportation, capital goods, industrials, basic materials and utilities. They are less likely to produce outperformers.
LSI Logic (LSI) is up 100% this year. Its chips are used in devices ranging from cell phones to video game systems. Earnings per share are expected to grow 23% this year and 438% next year, says First Call.
“They’re in a high-growth area of semiconductors,” Marker said. “Their price-earnings ratio will get lower as their earnings explode faster than their stock price rises.”