GEO Investing

Before I get into a reflection on the book Damsel In Distressed: My Life In the Golden Age of Hedge Funds, by Dominique Mielle, I’d like to point you to a few tweets I recently posted that I’ll parlay into the theme of today’s topic – capitalizing on market inefficiencies and how Mielle’s history of being an early investor in distressed asset classes rhymes perfectly with the edge that microcaps provides.

On December 16, I quickly commented on the aversion that people have towards microcaps, which is quite astonishing to me given that the quality gets swept into the melee of bad karma brought upon by the junk that gave the space a bad name in the first place:

There may not be a cookie cutter approach to finding multibaggers. For example, this term defines stocks that rise 2x or more. While nabbing a stock that doubles is nice, we invest in microcaps because they present lots of opportunities to find stocks that can rise 5x to 10x over time.

Still, with about 10,000 microcap stocks trading in North America, there are some traits or factors that continue to pop up in past multibaggers that you can reference during your research process to find the next one.

For example, companies that don’t issue an excessive amount of outstanding shares over time protects investors’ ownership interest in the company by limiting dilution.

Every year, on some level in our research or education, we remind you that companies have a somewhat wide latitude on how they are permitted to make adjustments to generally accepted accounting principles (GAAP) earnings per share (EPS) to report non-GAAP or “adjusted” earnings per share (EPS).

In an article we wrote in August 2016, “To GAAP or Non-GAAP, That is the Question,” we dove into this topic to highlight conservative and aggressive ways companies can make adjustments to GAAP EPS.

In the end, when analyzing EPS, we should strive to calculate a number that is most representative of a company’s everyday operations and its run-rate earnings power. This is accomplished by eliminating impacts to earnings per share that are one time in nature or generally non-recurring, as well as making adjustments to some non-cash gains/charges.

On Tuesday, BLBD, the largest American manufacturer of school buses, reported that its fourth quarter earnings per share (EPS) rose to $0.66, reversing a prior year loss, on a 17% increase in revenue. Furthermore, they demolished analyst EPS estimates of 48 cents per share, the third quarter in a row in which they beat EPS estimates by a wide margin. Despite generating over a billion dollars in revenues, the company is finding new ways to grow by making electric vehicle (EV) buses.

We were lucky to catch $LAKE’s CFO, Roger Shannon, on extremely short notice for a very early morning Management Briefing Skull Session on Thursday, December 7. We threw the invite out to Shannon because we were very impressed with the company’s strong Q3 2023 financial results just released the day before. We highlighted a key piece of commentary that would serve as a launching pad for a few subjects that we hoped he would touch upon:

The first phase of our Video Shelf upgrade has been launched, with an improved look and feel, as well as navigation.

Phase 1 of this launch will make it easier for you to find and watch videos from some of the best new and seasoned microcap investors around the globe that have been GeoInvesting podcast guests over the past several years. We call these video podcasts Investor Insight Skull Sessions.

We are also beefing up our Investing Legends video shelf section that so far include curated playlists from Peter Lynch, Joel Greenblatt, Chuck Akre, and Sir John Templeton. There are several others on deck that we know you are going to like.

In the September 24, 2023 edition of the Geowire Weekly, we provided insights into Buy On Pullback (BOP) Portfolio 11, which was launched the next day, September 25.

So far, we are pleased with its performance.

At the end of November 2023, the 7-stock BOP 11 demonstrated an average current return of 8.15%, beating the S&P 500 by 1.93%. The average peak return is 21.99%

At this point, it looks like BOP 11 is following in the footsteps of the track record of our impressive historical BOP performances, where 9 out of the previous 10 performed nicely, returning an average of 43.41%.