Sourcing Investment Ideas
Hey guys,
I'm going to be working on a stock pitch for a student value fund.
I'm looking for some small caps names and I was wondering how other people go about picking companies to look into, you obviously can't just go around reading a whole bunch of companies 10Ks until you find one you like. And I don't really think that using a stock screener is a very reliable way to find companies to dive deeper into.
I have a few ideas of specific areas I would like to look into but have no specific companies in mind. I tried to look on google finance for public companies related to the keyword but it yields a ton of results and most of them aren't even what I'm looking for.
So I was just wondering how you guys begin selecting companies to look deeper into.
Thanks





Okay, what are your specific
Okay, what are your specific areas? Ideally, ones you know at least something about or are interested in learning about. Then get some industry reports and read those. Then start looking at what companies are in said industries. Then download a bunch of 10-k's for each company and read through them. Read earnings call transcripts, or listen to them if you prefer. Then generate a thesis as to why they are whatever they are, what's going to make it go and what the key drivers are of said company going forward.
I'm not an ER guy, so I'm sure someone with more experience can help you further but that's what I did to get started investing and it worked out pretty well. If you want, toss out the areas and maybe you'll get suggestions.
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As far as it goes in an IB a
As far as it goes in an IB a research analyst will cover a sector and a few companies in the sector. He will know these companies backwards and publish a monthly report on them and rate them as buy or sell. Many people who pick stocks in banks use this information. As far as you souring a stock its not that simple otherwise everyone would do it. Pick a sector you are interested in and go from there. Maybe pick a marco theme and a view to help you choose your sector. If you think the economy is going to worsen in the next year due to euroheadwinds, slowing global demand etc, then pick a defensive sector like healthcare. Study the companies in that sector in the S&P 500 read reports and get down and dirty. See how the company has performed compared to the sector average, compared to the S&P. Looking at P.E compared to other companies in the same sectors, look at EV/EBITDA. What is their balance sheet looking like. Check who the companies are closest correlated to in the last year and see how that has changed in the last 3 months. If you find 2 companies are strongly correlated and yet in the last month they are trading very differently and you see no weakenss in the weaker companies performance maybe it is undervalued. I'd look for a company with strong 10k , P/E, EV/EBITDA relative to other companies in its sectors is under performing. It's not a simple task good luck.
As far as it goes in an IB a
As far as it goes in an IB a research analyst will cover a sector and a few companies in the sector. He will know these companies backwards and publish a monthly report on them and rate them as buy or sell. Many people who pick stocks in banks use this information. As far as you souring a stock its not that simple otherwise everyone would do it. Pick a sector you are interested in and go from there. Maybe pick a marco theme and a view to help you choose your sector. If you think the economy is going to worsen in the next year due to euroheadwinds, slowing global demand etc, then pick a defensive sector like healthcare. Study the companies in that sector in the S&P 500 read reports and get down and dirty. See how the company has performed compared to the sector average, compared to the S&P. Looking at P.E compared to other companies in the same sectors, look at EV/EBITDA. What is their balance sheet looking like. Check who the companies are closest correlated to in the last year and see how that has changed in the last 3 months. If you find 2 companies are strongly correlated and yet in the last month they are trading very differently and you see no weakenss in the weaker companies performance maybe it is undervalued. I'd look for a company with strong 10k , P/E, EV/EBITDA relative to other companies in its sectors is under performing. It's not a simple task good luck.
Addinator: Okay, what are
Okay, what are your specific areas? Ideally, ones you know at least something about or are interested in learning about. Then get some industry reports and read those. Then start looking at what companies are in said industries. Then download a bunch of 10-k's for each company and read through them. Read earnings call transcripts, or listen to them if you prefer. Then generate a thesis as to why they are whatever they are, what's going to make it go and what the key drivers are of said company going forward.
I'm not an ER guy, so I'm sure someone with more experience can help you further but that's what I did to get started investing and it worked out pretty well. If you want, toss out the areas and maybe you'll get suggestions.
I was part of the research group that worked on FIG for the past two years but I'm looking more at industrial because I find it more interesting. Specially I'm interning in Corp Fin at a manufacturer that's having inventory problems and are spending quite a bit on supply chain optimization consultants and stuff, I'd like to look into this more but I don't really know where to start, typing Supply Chain consultants into Google finance gives me a lot of logistic companies that focus on trucking which isn't what I'm looking for. Yeah I have a handle on what to do once selecting the company I'm just having trouble getting started.
Look at blogs that mention
Look at blogs that mention small-cap stocks:
http://www.valueuncovered.com/
http://www.rationalwalk.com/
http://otcadventures.com/
http://www.oddballstocks.com/
http://www.frankvoisin.com/
Also valueinvestorsclub.com and sumzero if you have access.
All I care about in life is accumulating bananas
Do you have access to
Do you have access to Factset, BB or Morningstar? Just use a screener.
Definitely pick something you
Definitely pick something you are interested in. The best pitches aren't always the one that have the greatest return profile but are the most thought out. Very often people do not price in risk when evaluating returns. I'd rather trade some returns for a lower risk profile. IMO there is a lot of risk in the footnotes and thats not going to show up in any screener so pick something you are ready to learn everything about.
Looking at quality investors'
Looking at quality investors' 13-Fs are one way to get investment ideas. At the least you can try and figure out what their thinking is, even if you don't like the idea yourself.
Try to find a screener online
Try to find a screener online and go through that. Also you could try talking to professors in your school to see if they are doing any current research