18 Quality Growth Ideas from Top Pros
One looks like a 10-bagger
It’s been some week. I have posted a few thoughts below for premium subscribers, but I think the world may be changing and have been puzzled by some of the market moves. This is not a time to watch, but to take action.
You would expect that the Quality-Growth Conference which I attended the day after the Value Investing Conference last week would have a very different attendee list and a very different atmosphere, but that would be true only in part.
Value investors have caught the quality bug and few quality growth investors would say they didn’t care about value, although one acknowledged openly that valuation didn’t matter to them. Others skirted the subject, for example by professing intrinsic valuations well ahead of the share price, but assumptions seemed to be on a need to know basis.
The Quality Growth presenters were younger, less experienced, and some were more confident (I would describe at least one as arrogant). And the audience had quite a lot of overlap although there were only a few attendees who, like me, made it to both days, including my friend Jonathan Boyar.
He summed it up well – he liked some of these companies but cannot get comfortable paying 40, 50 or 60 times earnings. He pointed out to one presenter that he liked the stock, and indeed still owned it, but he had bought it on a single digit multiple, not 24x.
Within this Quality-Growth group of stocks, I think there were some massive winners but also a couple of stocks which I was shocked to hear pitched. And it may not surprise you that the value community delivered more stock ideas. Therefore this week I will only give you 18-20 ideas, but at least one is a 10-bagger although I thought a couple were losers. I will of course explain my rationale when I do the individual stock write-ups.
Before getting into the detail of the conference, a word from this week’s sponsor. This helps me publish more free content and if you click on the links, it’s a great help. Thanks. Premium subscribers don’t get ads.
We've reset our strategy to grow shareholder value
We're targeting to grow free cash flow* at more than 20% (CAGR 2024-2027) and deliver ROACE of more than 16% in 2027.
*Adjusted operating cash flow
Presenters
David Souccar of Vontobel Asset Management kicked off. It might be worth paying attention to David as he was an attendee at my Forensic Analysis course in New York in November. Which makes him a serious investor in my book. I think he may be Brazilian; he has been with Vontobel since 2007 and manages their International Equity Quality Growth strategy.
David pitched two European growth stocks, one I know and like, and one a recent spinoff which was new to me and sounded worthy of further work.
James Bullock of Lindsell Train was next up. He manages their North American Equity Fund and pitched a stock which is quite controversial but also a favourite of Nick Train. I had a passing familiarity with the business but was quite surprised by some of the projections.
Jennifer Foster is co-Chief CIO of Chilton Investment Company, one of my more impressive former clients in my sell-side days. She has been at Chilton for 27 years and pitched a well-known US name but she had a very different angle on why it should rerate.
Alan Christensen of Fayez Sarofim pitched two “consistent companies in an inconsistent world”. Both were European, both were well-known names. I wasn’t familiar with the firm but Christensen claimed they have beaten their MSCI EAFE benchmark by 4.3% pa since inception; the firm was founded in 1958! They have 22 people in the investment team, their analysts have an average of 20 years’ experience and each cover 20 names. AUM is over $40bn and they are based in Texas. There is a lot of money in Texas – who knew?
Christopher Rossbach is CIO of J Stern & Co, a London based manager which looks after the wealth of the Stern family plus external investors. He pitched at the Quality-Growth conference in London, but thankfully of the 3 stocks he pitched, 2 were new.
Elias Erickson of Ninety One was last before lunch and pitched a global consumer stock based in Europe. Elias is lead PM on their Global Franchise Strategy and gave a good presentation, but why, why, why did one slide mis-spell a key product? Perhaps his marketing team rather than his analysts check the deck. And it’s so easy to miss a typo in a presentation. But for me, investing is about paying attention to the detail.
Tania Pouschine is the founder of Fithian LLC. She formerly co-managed Davis Advisors’ Global and International funds and previously was an analyst at Ruane, Cuniff. She started out as an investigative reporter and that has been the foundation of her strategy at her own firm where they do really deep research. I thought I did deep research but their analyst went to a half dozen trade conferences globally over the course of 12 months to research this idea. (My maximum was two).
Angela Wu of Artisan Partners presented two good ideas at the equivalent London conference and she gave another good presentation with a different angle on a well-known tech name. She is the software analyst on the firm’s Growth Team and formerly was Head of Corporate Strategy at Snap. She started out as an analyst at Goldman, and gave another impressive presentation.
Siddarth Jain is Deputy Portfolio Manager for all GQG Partners’ public equity investment strategies. His dad is the founder of this $150bn giant, which he started less than 10 years ago, and which I first heard of last year. And although Sid is young – he looks under 30, and is certainly under 40 – he gave a really impressive presentation. He pitched two ideas, both in Emerging Markets, one an overlooked traditional quality growth idea, the other I would consider deep value. Both were stocks I would be happy to consider PA.
James Fletcher is founder of Ethos Investment Management, a $100m Emerging Markets manager. He has a concentrated portfolio and pitched two of his favourite names, both of which I thought sounded compelling ideas which will require a bit of research and explanation in coming weeks. It’s interesting how you can find attractive niche businesses in EM which don’t trade at fancy multiples.
Morgan Samet is co-Head of the Lingotto Innovation Strategy, working alongside James Anderson who was interviewed in the closing session (and also in London). She pitched two moonshot ideas which were spectacular – this wasn’t flying car stuff, but stocks that I am seriously considering buying as small potential 100-bagger positions. I had a long chat with her and one of her analysts afterwards about AI and more, and was really impressed.
Fireside Chat
The final session was an interview with James Anderson by Fabio Ceccutto of Willis Towers Watson. It was a rerun of the London session although we were spared the “what’s your favourite ice cream flavour” questioning this time. Given that I covered the previous conversation in detail quite recently, I shall summarise the discussion more briefly here.
Anderson recounted a lunch he had recently with Hank Bessembinder, the author of the original study I have mentioned here several times in which just 5 stocks accounted for 10% of the US stock market’s c.$35tn gains over the period 1926-2016. This was supportive of Anderson’s previous conclusion that a handful of stocks drove Baillie Gifford’s success.
Anderson and Bessembinder are quite scornful of the Capital Asset Pricing Model. More on this in a future edition as one of the Value Conference presenters (to my astonishment) used it in his presentation to value a company. Anderson believes that the investor’s focus should be on identifying the dominant winning companies.
Bessembinder now believes that when you look at the history of the winners, there are some common themes. If you need to increase revenues and cash flows by 100x in 20 years, it limits the number of possibilities. Anderson pointed out that Pool Corp, one of the big winners was not an obvious candidate – it had a very small market share at the outset. Intuitive Surgical, in contrast, always had the potential to achieve that.
Anderson highlighted that the founders or CEOs of such companies have to have a very concrete philosophy of how they run their business. He cited Jeff Bezos’ 1997 letter to Amazon shareholders as an example. Although you could not predict AWS, these big winners often have a different vision and are able to disrupt their industries.
Anderson is a very different type of investor. He thinks conviction is dangerous as it implies certainty about the future. His approach is that you need to be willing to accept pain and to be wrong, in order to benefit from these big winners.
He is extremely positive on China – he would like to have 50% of his portfolio there now but it’s difficult to do so given the geopolitical backdrop.
He thinks Nvidia has the potential to be the next $10tn company.
He sees wholesale changes in the world’s energy system – the move to renewables – as just as important as the rise of new tech platforms 20 years ago. Similarly, the reinvention of transportation systems is a major opportunity.
They are investing in the companies building the tools for AI. LLMs are not the end-game and you need to think of the big opportunities. He mentioned autonomous vehicles and robotics, but sees the real prize in healthcare - improvements in our understanding of human biology are developing quickly. He mentioned Tempus AI, founded by Eric Lefkofsky, the co-founder of Groupon, who has an obsession about improving healthcare.
He sees limited differences between private and public markets. Companies like Stripe have found ways of monetising their employees’ interests. The outcomes are much the same, the difference is that in the VC world, everyone is looking for the big winner but ironically in his view, almost nobody is doing so in public markets.
He was asked about the concentration risk in running winners. I recall Tom Slater in my podcast saying that Scottish Mortgage had a 10% limit in an individual stock and Anderson said that if they hadn’t trimmed Tesla it would be a 32% position. He has a quite interesting solution to this problem – if the manager has real conviction in the position, rather than trimming, they could just distribute the stock to the client.
Premium Subscribers can read on for Anderson’s two Chinese stocks, and for the full list of 18 stock pitches. That makes 20 stocks in all, to add to last week’s 27, making 46 ideas in total (1 overlaps), which I shall write up at the rate of 3-5 per week in the coming weeks.
Some of these are exactly the kind of ideas I look for — and I’m sharing them exclusively with premium readers. If you want to save time, learn from the smartest investors in the room, and get access to my independent analysis every week, now’s a good time to join.
As well as the stocks pitched, premium subscribers also get some thoughts on tariffs and markets.