We're Bullish...Eight Years and Running!
As we wrote our last Investment Climate, January 2016 had the distinction of being the worst start to a year in history. Well, much as we suggested, it simply doesn’t pay to worry about the gyrations of the market, as we finished off the first quarter with a positive return in spite of January. Quite an impressive recovery -- for eight years and running!
There’s an old adage on Wall Street that says “bull markets don’t die of old age”. The point is that it takes external events, usually caused by poor fiscal and/or monetary policy decisions, which weaken the economy and the stock market to extremes that can be considered “bearish”. And as anybody who watches the “play by play” financial media knows, there has been no shortage of those calling for impending doom. In fact, like clockwork during the last eight years (coinciding with the times these pundits have a book being published), there has been constant call for financial Armageddon. We suppose that someday they may be right. But as we have argued for years, there is no reliable, sound strategy which uses as its basis the collapse of the world as its primary focus.
Through the decades that we have been managing investments for others on a professional basis, we have observed that the only winning strategy over time is one which searches out the exceptional, and looks to capitalize on it as a means of making money. For us, it has been looking for businesses that are truly innovative, creative, distinct, and set out to be the best at what they do, and thereby able to weather a market downturn. In a world which seems to be full of negativity, whether it be true strife and suffering, as in many place in the Middle East, or simply the struggles of hard working families right here in the USA in what has been a very slow-growing economy, the fact is that there are simply amazing things happening in the world that are largely driven by entrepreneurs and business people.
Our investment strategy centers on searching out those exceptional businesses, and ultimately the people who run them and work in them, and putting our clients in front of those exceptions as a means to profit. Here are a few of those amazing stories:
Ironically, the first we choose to highlight is from the Middle East -- in tiny Israel. Mobileye, NV (MBLY) is a pure play in the rapidly growing market for driver-assistance systems in automobiles (ADAS). The core technology behind MBLY is a single camera, software-based system-on-a-chip which offers the best combination of reliability and cost when compared to other sensor technologies (MBLY does not make the camera). This simple system allows auto manufacturers to integrate all the ADAS applications in the car in one compact package, and upgrade with simple software updates all for a low cost of entry of less than $150. This compares to other systems which can run in the thousands of dollars. The company’s customers include BMW, Volkswagen, GM, Ford and Tesla, to name a few. We believe the future of the “driver assist” and ultimately the “driverless” car bodes very well for MBLY, not to mention what it does for the safety of drivers.
Next, we look at Edwards Lifesciences Corporation (EW). EW is a global leader in products and technologies designed to treat advanced cardiovascular disease. The company is focused specifically on technologies that treat structural heart disease in critically ill patients. Most recently, investigators presented data on EW’s Sapien 3 trans-aortic valve replacement (TAVR) device in comparison to the traditional treatment, which is surgical valve replacement (SAVR), and found the Sapien 3 to be superior in intermediate risk patients. This is amazing because it now can potentially eliminate the need for open heart surgery for many people who suffer from heart disease!
Lastly, we have Middleby Corporation (MIDD), based in Elgin, Illinois. MIDD has been in business for over 100 years and yet continues to grow as an innovator in the food preparation equipment business. The company has grown both organically and by acquiring great brands which serve the food service industry with customers such as Papa John’s Pizza, Subway, Costco and Yum! Brands. MIDD’s brands include Viking, Turbo Chef and Toastmaster, just to name a few. And while they have been around for a century, technology plays a key role at this gem of a company. For example, the improvements in cooking/baking efficiency of the Wow! Oven reduces the time it takes to cook a pizza from 7 minutes to 4 minutes and 30 seconds, with 1/3 less energy! The Pitco fryer cuts the costs of oil in half and doubles the usable time of the oil in the fryer. MIDD is riding the wave of “casual dining” popularity, yet also serves the industrial processing and baking industry all around the world.
These are just a handful of the companies that are changing the world, or making it a better, more efficient and safer place to live. The companies mentioned are all in TFCM client portfolios and owned by the Principals of Taylor Frigon Capital Management LLC. And we continue the search for more!