Investment Philosophy

ELCO looks to draw upon its management expertise and experience to capitalize on investment opportunities. We are forward thinking in not just investing in undervalued growth situations but also looking further out in terms of the timing of the stock market’s recognition of these situations.

We use a rigorous, research-driven process that has provided solid performance on a risk-adjusted basis. To generate investment candidates, we draw from a broad network of relationships including research analysts, company representatives and experts in the field. We look for their company relationships to provide insight about trends, competition, suppliers, producers, customers, and a forward-looking analysis on the industry. We also attend a significant number of industry conferences worldwide, where the leading experts are brought together.

We then construct a bottom-up fundamental analysis viewpoint on the potential securities. We seek companies with improving fundamentals, good management, clean balance sheets, and good cash-flow generators. A crucial part of our analysis is to discover established companies undergoing a positive fundamental change that is not yet reflected in the stock price. Winning companies will be those that are forward thinking and entrepreneurial, with a national scope, low-cost operations and financial strength.

Portfolio Construction

We seek to construct a portfolio that is diversified based on market capitalization, geographic region, financial condition, individual business characteristics and stock liquidity.

Our Portfolio typically consists of 20 + stocks, with the majority having a market cap of over $1 billion. While not fearful of large positions, very rarely will a position exceed 10%. We try to take positions in companies we know very well and which we believe have limited downside based on valuation fundamental analysis, and wherever possible, an above average cash dividend return.

Sell Discipline

Though each company in the portfolio is reviewed on a regular basis, we will implement our sell discipline when one of the following three events occurs:

Target price achieved
If a company’s earnings growth accelerates as expected, its P/E rises and our price target is achieved. If, however, a company’s fundamentals improve with earnings accelerating faster than expected or its business outlook has been greatly enhanced, we will re-examine our price target and raise it if appropriate.

Event Triggered
If certain companies in the portfolio are expected to be positively impacted by an event, such as being acquired or merged.

Deteriorating Fundamentals
If a company’s earnings or business outlook fail to improve, and we see nothing on the horizon to positively affect the company’s ongoing financial situation.