(09/09/2011) At IAM’s core is our philosophy of investing in companies with SELECT qualities. 
The SELECT acronym stands for key characteristics we seek in companies:
S = shareholder-friendly
E = environmentally-responsible
L = leadership with a vision
E = employee-fair
C = customer-focused
T = time proven
It’s easiest to find these qualities demonstrated by companies of size with long track records. Good examples are Apple, Colgate-Palmolive, Costco Wholesale, Emerson Electric, Nike, and United Parcel Service. They’ve had many years to prove their adeptness and have grown large enough to be well-scrutinized.
The largest companies on IAM’s SELECT List are valued highly in the market place. Apple is worth $355 billion. IBM, Chevron, and Procter & Gamble are all approaching $200 billion. Today I’d like to talk about smaller companies. Why? Because their size provides them with opportunities for expansion and growth.
A year ago, IAM had just two SELECT companies with less than $10 billion in market capitalization, or size, outside of utilities. We’ve diligently researched to find more companies in this category with SELECT qualities. We now have eight in this group.
The new additions span the economy. Let’s just look at what they do. I’ll address them alphabetically. Fossil (FOSL) is a rapidly-growing marketer of accessories and apparel. It’s best known for its retro watches. Oceaneering International (OII) is the world leader is subsea products and services, including remote operating vehicles (ROVs) that help oil drillers as they connect equipment in deep ocean environments.
Rayonier REIT (RYN) owns timber and sells land, but does much more. Its leading business is the manufacture of specialty fibers used for various purposes such as high-tech filters and elements used in LCDs. Realty Income REIT (O) is the “monthly dividend company.” It has a 40-year history of buying real estate to lease back to retail stores and other business owners. It made it through the “Great Recession” without dipping below a 96% occupancy rate. And, of course, it pays a monthly dividend that increases each quarter.
Tempur-Pedic (TPX) is a rapidly expanding global manufacturer of bedding designed to provide greater comfort and better sleep. It’s more than tripled in size over the past nine years and appears headed for further growth as it broadens its offerings, penetrates additional stores, and expands abroad. Werner Enterprises (WERN) is a truckload carrier focused on service-sensitive markets and logistics. It uses the latest technology and methods to assure dedicated delivery services to major U.S. retailers and customers with complex requirements.
IAM has long been known for its focus on SELECT investment criteria and its ability to identify high-quality, dividend-producing stocks. Over the past year we’ve broadened our efforts to include a much wider assortment of smaller, growth companies. Some of these pay good dividends, while others pay none. All of them meet our SELECT standards. We haven’t lowered to bar to go for growth.
Actually, this effort was founded upon our vision of the future. We see a somewhat lengthy period of slow growth for mature economies, such as the U.S. and Europe. Large companies with strong operations in emerging economies will likely continue to thrive. Smaller companies with new products and services will also do well as they expand their footprint domestically and abroad.
What’s different in this decade is there seems to be fewer emerging growth stocks around. The days of rapid expansion in the U.S. seem to be gone. We believe companies that have moved up into the mid-capitalization category ($3 billion to $10 billion) and have proven growth plans will become more highly valued by investors. It’s the scarcity factor, just as we’ve often cited for companies with steadily growing dividends.
We believe these mid-cap, SELECT companies will garner more attention this decade from large investors and, consequently, rise in value. It’s time for us to get our investment clients out ahead of this movement and positioned for growth in the decade of the ‘10s.
If you want to discuss any of these names, contact us. We’d be happy to review their potential for your portfolio.
Important Consumer Disclosure
This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions. This communication contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.
The Select List represents all of IAM’s recommendations as of August 15, 2011. A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge. IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice. The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.
IAM is an SEC registered investment adviser with its principal place of business in the State of Texas. IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients. IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.
