The Analysts' President

{Q} How do you identify the most influential analyst?

{A} Basically, you’ll see that through short-term price movement in the stock. The most influential analyst may not be the best analyst, but rather the analyst with the biggest retail network or the broadest following among the institutions. So when that individual issues a report, or a rating change or new earnings forecast, the stock can react for that reason.

{Q} Does your model evaluate the quality of earnings in any way?

{A} Only to the extent that companies are meeting or exceeding the earnings estimates. We don’t do any work on adjustments to earnings below the operating line like write-offs or extraordinary items or other non-operating items. We let the analysts do that work. Their ultimate earnings per share numbers are a result of sifting through all the quality issues that may exist. We deal only with their end product.

{Q} Has your model turned up any local companies?

{A} Yes. Currently in our 50-stock portfolio, one of our holdings is SurModics (Nasdaq: SRDX).

{Q} If you see a lot of revisions downward, does that forecast a drop in the market?

{A} We could track that, but it doesn’t impact our ability to generate returns. For instance if you were to see a lot of downward revisions in energy stocks as the price of oil drops, that would be interesting, but it doesn’t impact the decision making in the model. It just means there would be fewer stocks available in the energy sector that have earnings improvements. However, we still find those stocks that are outperforming the sector.

{Q} So you make no sector bets.

{A} No sector bets. No sector rotation. No tilt to growth or value. It’s all just finding the best stocks in each sector. So, if we’re in a growth market, we will find high-growth stocks that perform very well. If it’s a value market, we will find value stocks that rebound very well. Our style is interesting, because we move from growth to core to value depending on the overall market.