Our Process
“The vagaries of the market often serve to create fairly substantial compressions and expansions of business valuations.”
– Brian Barish, President and Chief Investment Officer.
Cambiar utilizes a ‘good company, good price’ discipline. Each company entering any of the Cambiar portfolios needs to satisfy the firm’s criteria on four levels: quality, valuation, value creation and upside criteria.
Quality – Cambiar analysts seek companies that are best-of-breed within their sector or industry, and have some defensible characteristics – i.e. patents, established infrastructure (patents), switching costs, etc. Cambiar also looks for high quality in the way of strong financials – balance sheet strength, low debt/equity levels, and demonstrable free cash flow over a full market cycle. Finally, Cambiar companies should be led by a competent management team that has a constructive relationship with their public shareholders.
Valuation – The Cambiar investment team uses conventional financial measures, such as Price/Earnings, Price/Book Value, etc. An underlying premise of the Cambiar philosophy is that certain industries tend to follow certain valuation ranges; the market does not randomly value stocks. Our preference is for companies to be trading at the lower end of their normalized valuation range at the point of purchase. Given the underlying mean reversion element, it is critical for the analysts to be confident that the fundamentals/industry dynamics that resulted in historical valuation ranges are consistent going forward. Given our more conservative investment stance, Cambiar tends to be highly skeptical of ‘new paradigm’ industry valuations.
Quality – Cambiar analysts seek companies that are best-of-breed within their sector or industry, and have some defensible characteristics – i.e. patents, established infrastructure (patents), switching costs, etc. Cambiar also looks for high quality in the way of strong financials – balance sheet strength, low debt/equity levels, and demonstrable free cash flow over a full market cycle. Finally, Cambiar companies should be led by a competent management team that has a constructive relationship with their public shareholders.
Valuation – The Cambiar investment team uses conventional financial measures, such as Price/Earnings, Price/Book Value, etc. An underlying premise of the Cambiar philosophy is that certain industries tend to follow certain valuation ranges; the market does not randomly value stocks. Our preference is for companies to be trading at the lower end of their normalized valuation range at the point of purchase. Given the underlying mean reversion element, it is critical for the analysts to be confident that the fundamentals/industry dynamics that resulted in historical valuation ranges are consistent going forward. Given our more conservative investment stance, Cambiar tends to be highly skeptical of ‘new paradigm’ industry valuations.
Inflection Point – Another component of the investment process is to identify some type of fundamental positive development that can change the market’s current negative perception of the company. Such catalysts may come in varying forms; examples include: new product introductions, managerial changes, divestiture of an underperforming division, or simply better financial performance. Valuation in and of itself is not a catalyst – there must be some identifiable event that will cause investors to reassess the business and award it a higher valuation.
Upside criteria – The final component is the company’s upside potential: all new purchases must demonstrate the ability to achieve Cambiar’s High Hurdle Rate over a 12-18 month time horizon.
The results are diversified, benchmark-agnostic portfolios designed to outperform their respective benchmarks.
Upside criteria – The final component is the company’s upside potential: all new purchases must demonstrate the ability to achieve Cambiar’s High Hurdle Rate over a 12-18 month time horizon.
The results are diversified, benchmark-agnostic portfolios designed to outperform their respective benchmarks.