Galileo Global Equity Advisors Inc.’s CEO and Chief Investment Officer Michael Waring spoke with SmallCapPower.com recently about his success as a small and mid-cap portfolio manager and mentioned a stock he likes that is currently yielding 3.5%, and that dividend is expected to consistently rise over time.
Small Cap Power: In which ways do your funds stand out from others in the marketplace?
Michael Waring: We’re focused on small and mid-cap growth companies. We tend to look for earlier stage companies, companies that are not well followed on the Street by the sell side brokers. So typically in our portfolio there’s going to be a bunch of names that you’ve probably never heard of – you don’t come to us to buy the Top 50 names on the Toronto Stock Exchange, that’s not our universe.
Small Cap Power: What are the most important factors that you consider before investing in a particular stock?
Michael Waring: I would have to say Management, Business Model, and some type of Competitive Advantage – that’s what we focus on. We like to find companies that have some kind of edge to them versus the competition. And when it comes to, let’s say, commodities we want to make sure that we own companies that are involved in commodities that have one of the lowest cost structures of anybody in the business and they have expanding volumes, they are growing their volumes. So that we are not just betting on a commodity price.
Small Cap Power: When you say Management what does that mean to you?
Michael Waring: A demonstrated history of proper execution and delivering results. For example, in the energy space we’ve been investing in energy stocks for many years. And over many years of doing this you get to know who is good and who may not always deliver.
Small Cap Power: Do you use a different criteria when choosing a small cap stock over a mid-cap?
Michael Waring: No, not really. Of course we don’t want to invest in anything that’s too small or illiquid. That’s something that we guard against. It’s a very similar process and we are very much bottom-up stock pickers. We are just trying to investing in good businesses on behalf of our clients and that’s really the objective.
Small Cap Power: Which stocks do you like at this time and why?
Michael Waring: Our macro view is that the U.S. economy is continuing to recover and will get stronger in the months ahead. And certainly the recent correction in the oil price has led to a correction in gasoline prices that represents a significant, in effect, tax cut to U.S. consumers. That’s one of the backdrops we have in our thought process. So for example as a partial play on a continuing U.S. recovery we would look at something like a Russel Metals Inc. (TSX: RUS).
As well if you want a business that’s very solid in terms of its competitive position, Canadian Energy Services & Technology Corp. (TSX: CEU). It has a 3.5% yield. We like the business a lot because their business model is very unique. It is an oil service company, but it doesn’t have to spend a lot of money building drilling rigs and tanks, etc. What this company provides is specialized drilling fluids to the industry, drilling fluids and production fluids. And so this is more of a Research and Development lab and that’s what they spend, it’s on R&D. But they don’t have to spend on all kinds of equipment, so we think over time they will raise the dividend pretty consistently.
Small Cap Power: Thank you for your time Michael
Michael Waring: Thank you.
