Steven Feldstein and Associates (“SFA”) is a registered investment adviser with the United States Securities and Exchange Commission. SFA has made Investment Adviser Notice filings in the following states: CT, NJ and NY. Investment advisory services described herein are not offered, nor can they be provided, to individuals or entities accessing information from any state where SFA has not made proper filings. Therefore this website is not an offer or solicitation for investment advisory services or other products or services in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the securities laws or other local laws and regulations of that jurisdiction.
Our philosophy has not changed for 32 years – we buy businesses, not stock. We look for long-term fundamentals that outweigh short-term worries on the Street. We have long-term horizons and enormous patience. We look for companies trading at a discount to free cash flow, book value and earnings. We have a basic fundamental belief that all undervaluation will eventually correct. As our criteria for investment, we look for strong franchises that have the freedom to price, strong experienced management that is owner-oriented, and businesses trading within 30% of tangible book value, with 10% return on equity for every dollar of book value purchased.
As an example, if a company is trading at 2 times book, we are looking for a 20% return on equity. We look for an earnings growth rate for the past three years that, projected forward, is in excess of the current price to earnings ratio, that is known as the PEG. We look for intrinsic value yield, essentially distributable free cash flow to market price, that is at least 400 basis points greater than the 10-year Treasury rate. As an example, if a company has a market value of $1 billion, we expect distributable free cash flow of at least $70 million. We look for a current ratio, that’s current assets divided by current liabilities, of at least 2, and for a quick ratio, that’s current assets minus inventory divided by current liabilities, of at least 1. We like enough cash in working capital to cover payables and short-term debt that is less than 50% of net worth. Most important, we look for companies that have a stated mission to generate shareholder value. That means expansion that is accretive to earnings, dividend increases and share buybacks.
As a final filter, we like to see our companies trading above their 10-month and 200-day moving averages. Our dream investments are companies that trade for less than net working capital – that’s current assets minus current liabilities minus long-term debt – and that have operating cash flow.