From analysis to action
Between the moment the Caisse’s Canadian stock market experts decide to invest in a company and the moment the transaction is finalized, several months may go by. In fact, every investment involves a rigorous process of analysis and investigation.
An investment in a public company is a team effort requiring careful analysis and in-depth expertise. Since the Caisse is a long-term partner, it establishes a relationship of trust and collaboration with the companies in which it invests, allowing it to fulfill its mandate in a stringent, professional manner.
An Investment Process Explained
Spotlighting selected companies
- Investment philosophy : identifying high-quality companies presenting a reasonable evaluation.
- Approach: long-term horizon.
- Investment evaluation criteria: Strong management team, solid corporate strategy, competitive advantages, clean balance sheet, etc.
In-depth analysis to establish intrinsic value.
- Careful research: tours of the company and its competitors, discussions with clients, modelling of financial hypotheses to establish projections and the resulting values.
- Objective: Fully understand the business model of the company. Evaluate the scope of its expertise, its ability to recruit and retain the talent required for its development, its potential for international expansion, its profit margin trends, and the capital needed.
- Result: the information gathered provides a foundation for determining the company’s intrinsic value based on its estimated ability to generate cash inflows. This value may change over time, but it fluctuates far less than the share price.
Deciding to buy or sell the security
- Buy: When stock is trading significantly below its estimated intrinsic value, it is a good time to buy. This approach creates a sort of cushion for the buyer. If the intrinsic value were to be revised downward but remain above the purchase price, capital would be protected.
- Sell: Stock can also trade significantly about its estimated value, however, and this sends a sell signal. There may be times when it is smart to sell some of the acquired shares.
- Cycles: Cycles can be fairly long, but the market will invariably bring other opportunities when the share price falls below its intrinsic value.