Our investment process focuses on companies that are growing revenue, margins and earnings. When you find these three factors accelerating at the same time, there is a good chance you have a stock that’s going to perform well. We often find that companies with these characteristics are at the beginning of a new product cycle, and much of our stock analysis is concentrated on finding those companies.
We marry our fundamental work with macroeconomic analysis, which helps us identify where we are in the business cycle. This informs our risk appetite: aggressive in bull markets, defensive in bear markets. Finally, we use technical analysis to time our buys and sells.
Our style is active, and we like to find stocks exhibiting strong share price momentum, showing that the market validates our fundamental views. In constructing our portfolio, we apply a split approach – core stock selection based on finding long-term thematic winners, and tactical selection driven by the outlook for growth and inflation.
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The resulting portfolio tends to vary significantly from both the index and our peer group. We believe that the following three stocks boast considerable upside potential.
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Two top investment themes
Palantir (Nasdaq: PLTR) is at the centre of two of the biggest investment themes of today, namely defence and AI. It is a software developer embedded with organisations such as the CIA and the US military, enabling them to interpret and use the huge amounts of data they receive on a daily basis.
Palantir also has commercial applications and helps companies optimise their supply chains and other operational functions. The company is unique in that it doesn’t have any true competitors in terms of the product suite it provides. It is growing revenue at an annual pace of 55% and looks set to continue its strong performance.
Axon Enterprises (Nasdaq: AXON) is the company formerly known as Taser, and it still makes the iconic Taser product. Its mission is to dramatically reduce the number of deaths by firearms, and it has done that over the years as its non-lethal alternative has gained traction globally. It also has a bodycam product, which is where the real potential lies. The bodycam videos the arrests of suspects, and then Axon’s AI software takes the footage and writes up reports for police officers. This saves an average of four hours of police time a day and is one of the few real-world applications of AI today. Axon’s penetration of global markets is still in the single digits, and we believe it can continue its 27% top-line growth.
More bang for the buck
We believe that Dollar General (NYSE: DG) is in the early stages of a big turnaround. The main reason for this is that one of its competitors in the dollar-store sector, Family Dollar, is closing stores at a rapid rate, and in doing so, it is donating market share to Dollar General. Its last earnings call gave this thesis a boost – the company reported accelerating revenue and margins, and the stock jumped 16%.
Concerns over tariffs and household spending have been priced into this stock, in our view, and with the company trading at 0.4 times sales, it is cheap and primed for a rerating.
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