GARP Investors?

[Yours Truly]

Any GARP investors in here? I know this thread won't fancy the hardcore value investors but might as well throw something different out there...

 

I've done quite a bit of digging using CapitalIQ mainly with metrics such as steady consistant ROE (>15%), EPS, and high insider ownership and found quite a few interesting companies.

 

My rationale is to look for 2nd/3rd inning stage growing companies with high insider ownership (usually the founder) and hitch a ride on their entrepreneurial energy and motivation.  The majority of the results returned mainly small cap which is great as a $1-2 billion company can easily grow for years and years with a great capital allocator and business model at hand.

 

A few good ones i've found:

 

NEU - NewMarket Corporation

ROE avg  = 50% (1-yr), 39% (5-yr), 28% (10-yr)

EPS CAGR = 18% (1-yr), 30% (5-yr), 31% (10yr)

29% inside ownership, D/E = 2.13

 

MSM - MSC Industrial Direct Co. Inc.

ROE avg  = 23% (1-yr), 21% (5-yr), 20% (10-yr)

EPS CAGR = 19% (1-yr), 6% (5-yr), 18% (10yr)

24% insider ownership, D/E = 0.22

 

NRCI - National Research Corp.

ROE avg  = 26% (1-yr), 21% (5-yr), 18% (10-yr)

EPS CAGR = 28% (1-yr), 15% (5-yr), 14% (10yr)

56% insider ownership, D/E = 0.56

 

CPRT - Copart, Inc.

ROE avg  = 33% (1-yr), 21% (5-yr), 17% (10-yr)

EPS CAGR = 29% (1-yr), 10% (5-yr), 16% (10yr)

11% insider ownership, D/E = 1.06

 

MLAB - Mesa Laboratories Inc.

ROE avg  = 20% (1-yr), 19% (5-yr), 18% (10-yr)

EPS CAGR = 23% (1-yr), 10% (5-yr), 14% (10yr)

20% insider ownership, D/E = 0.15

 

Lumber Liquidators Holdings, Inc.

ROE avg  = 21% (1-yr), 18% (5-yr),

EPS CAGR = 107% (1-yr), 29% (5-yr)

20% insider ownership, D/E = 0.60

 

CVGW - Calavo Growers Inc.

ROE avg  = 16% (1-yr), 16% (5-yr), 15% (10-yr)

EPS CAGR = 53% (1-yr), 17% (5-yr), 8% (10yr)

18% insider ownership, D/E = 0.88

 

LQDT - Liquidity Services, Inc.

ROE avg  = 21% (1-yr), 18% (5-yr),

EPS CAGR = 80% (1-yr), 15% (5-yr)

4% insider ownership, D/E = 0.48

 

CERN - Cerner Corporation

ROE avg  = 15% (1-yr), 14% (5-yr), 13% (10-yr)

EPS CAGR = 21% (1-yr), 19% (5-yr), 19% (10yr)

14% insider ownership, D/E = 0.31

 

ODFL - Old Dominion Freight Line Inc.

ROE avg  = 18% (1-yr), 14% (5-yr), 15% (10-yr)

EPS CAGR = 28% (1-yr), 15% (5-yr), 22% (10yr)

14% insider ownership, D/E = 0.67

 

Anyone else partake in this "style" of looking at companies? My inspiration for this comes from Peter Lynch and the fine folks at Giverny Capital

 

This is only one aspect of my watch-list universe as I also have another watch list for share buybacks and spin-offs... the common denominator for me is always consistent and high ROE

[ItsAValueTrap]

I think that Buffett and Munger are more "GARP" than cigar butt investors nowadays.  Buffett's biggest purchases rarely have low discounts to liquidation value, low P/E, good P/B, etc.

 

But it would be more accurate to say that they want to buy fantastic businesses at good prices.  Fantastic is a number of different things:

- The business has good economics.  Then again, Warren is in some bad sectors like reinsurance only because he has one of the few reinsurance companies that will make good returns on capital.

- The sector or company isn't about to plunge over a cliff.  Hence, Warren sold off Fannie and Freddie.

- Ethical management

- Management isn't really dumb.

- Can invest capital at high rates of return

 

---

Altisource is a company I own... I have some blog posts on it:

http://glennchan.wordpress.com/tag/altisource-asps/

[Yours Truly]

Altisource is a company I own... I have some blog posts on it:

http://glennchan.wordpress.com/tag/altisource-asps/

 

Great find! i'm surprised it didn't show up on my screener as it has all the right ingredients i'm looking for:

 

Consistently high ROE - 43% avg (5-yr)

30% insider ownership

Increasing margins, sales

D/E = 1.70

63% EPS CAGR (5-years), 33% (3-yr) 59% (1-yr)

Trading at modest P/E = 15

 

Definitely adding this to my list

I've also noticed that in companies with high insider ownership, there isn't much debt and share dilution which bodes well for investors trying to align their interests with the founder and CEO

[Palantir]

I've been a closet GARP investor posting on a value forum, so I will stop living this lie and come out.

 

My current GARP picks are:

 

Red Hat (RHT) - high switching costs, disruptive player with low margins and an economic moat.

 

Parker Hannifin (PH) - very strong distribution and retail network gives this firm a substantial edge in the industrial goods market.

[jay21]

I like GARPy stocks, but I feel like I must have insight into their competitive advantage or have very high faith in the jockey.  I am sure everyone already knows about the more famous ones: LUK, BRK, MKL, FFH, GLRE, etc.

 

One that I started looking into was FRMO, which has a thread.  Might be worth investigating.

[Ross812]

I buy both GARP and Value. Express scrips, LKQ Corp, Petsmart, and Bidvest are all garp stocks in my portfolio. The problem with GARP, is a reasonable price to one person may not be reasonable to another.

 

One of my favorite metrics is considering how a company performs in tough economic environments. Take a look at Petsmart and LKQ corp below. 2008-2009 was hardly a blip on the radar for these companies. It turns out people still fix their insured wrecked cars, and take care of their pets during a deep recession. These are the the type of GARP companies I'm looking for.

 

Petsmart:

 

 

LKQ:

 

 

 

 

 

 

 

[Palantir]

What's up with MLAB's sudden growth spurt? I looked at it late 2010/2011 and it looked pricey-ish, I was an idiot obv.

[oddballstocks]

 

Red Hat (RHT) - high switching costs, disruptive player with low margins and an economic moat.

 

 

I don't get this, why are switching costs so high?  I've done a lot of work in the Linux space, and I haven't run into any applications built with OS specific APIs.  Something built on a LAMP or Java or Rails stack could be moved between Red Hat and Ubuntu with ease, usually by just copying the files straight across.

 

If you said Oracle and high switching costs I'd agree, but I'm struggling to know where it is with Red Hat.  Swapping a Linux server is painless, and with the proliferation of the EC2/Rackspace/Digital Ocean stuff users are even more OS agnostic. 

 

Windows to Linux has a high switching cost, and Solaris to Linux a high switching cost.  But Red Hat to any other distro is pretty level, unless maybe Slackware or something, but who's using that outside of a few hobbiests and hard core Linux users?

[Palantir]

I have absolutely no idea. Just based on discussions with people has given me that impression.

[Yours Truly]

 

Red Hat (RHT) - high switching costs, disruptive player with low margins and an economic moat.

 

 

I don't get this, why are switching costs so high?  I've done a lot of work in the Linux space, and I haven't run into any applications built with OS specific APIs.  Something built on a LAMP or Java or Rails stack could be moved between Red Hat and Ubuntu with ease, usually by just copying the files straight across.

 

If you said Oracle and high switching costs I'd agree, but I'm struggling to know where it is with Red Hat.  Swapping a Linux server is painless, and with the proliferation of the EC2/Rackspace/Digital Ocean stuff users are even more OS agnostic. 

 

Windows to Linux has a high switching cost, and Solaris to Linux a high switching cost.  But Red Hat to any other distro is pretty level, unless maybe Slackware or something, but who's using that outside of a few hobbiests and hard core Linux users?

 

and Hence why the numbers don't look too great with RH... declining margins, low ROE, etc

[Palantir]

How about switching from Red Hat to Oracle or Windows? Not talking about switching between Red Hat and other distros-not even considering that.

[oddballstocks]

How about switching from Red Hat to Oracle or Windows? Not talking about switching between Red Hat and other distros-not even considering that.

 

Um..are you sure you know what you're talking about here?  Oracle is a database that can run on both Windows and Linux.  Oracle also owns Java which is a platform dependent language (sure, maybe I drank the kool-aid back in the 90s…).  Do you mean Solaris, the operating system from Sun that was acquired by Oracle?

 

So you're asking about switching between Windows and Linux.  Organizations build their systems around their OS choices, so a Windows shop would be using .NET, C#, Sharepoint etc.  These tools are Microsoft only, this is why MS has a moat.  A place that builds their billing system in .NET cannot use anything but Windows and .NET.  Someone might argue Mono is a replacement, but that's probably a valid argument for the geek segment trying to bootstrap a .NET application.

 

Linux is similar, if someone were to build a custom desktop application in Linux it would be very difficult to port to Windows.  But that said if someone built a custom desktop app in Linux it's hard to imagine what distro specific hooks they'd include that locked it down to RedHat.  Maybe if you're talking about a place writing device drivers or something it would be RedHat specific, but otherwise it would be Linux (not RedHat) specific.

 

Here's the thing about moats with Linux, I think what people miss is the people working with Linux.  I'll come out of the closet on this one, back in the 90s I was a huge Linux/OSS gearhead.  I loved the movement and the ideals, a lot of this carries over to now, this is why I publish my ideas for free on a blog.  Anyone remember the meme "Information wants to be free"?  People who were/are Linux gurus aren't tied to a distro, sure they have preferences but they can work in any.  The systems are similar.  I used RedHat in the 90s, then switched to OpenBSD for a while.  I'm working on a side project startup, we're using Ubuntu.  Anything I knew on RedHat (minus rpm) works the same on Ubuntu, except Ubuntu is much slicker.  The apt-get system blows the pants off rpm.  System admins who are into Linux are into Linux, they're not into Redhat.  This is different from Windows admins who know Windows and think poorly of Linux.

 

My experience in the enterprise environment is that most large companies are using Solaris.  Sun did a bang up job selling the enterprise strength of Solaris back in the 90s.  My experience with sysadmins is that the ones who know Solaris think nothing else compares.  I can't imagine a bunch of Solaris admins switching to Linux, because of course Linux isn't a true *nix…

 

This was a heck of a digression!  I didn't touch a console for about six years, and seriously for about eight years and coming back into this now I'm really impressed with where things are.  I setup a server tonight in under 15m with a complete database and web stack.  I remember 10 years ago battling this all day messing around with make files.

 

To bring this back to GARP..  Believe it or not I could invest in a GARP company on a few conditions, if the company were small and in a growing market.  The second is if I personally knew the CEO and executive team, and knew the industry very well.  I have seen some growth-y investments in industries I know well that I wouldn't mind investing in.  Of course the pre-condition is I would want some sort of safety with it, this comes with small companies which always are underpriced for growth.

[Palantir]

I understand your point, but, say if your average company is running Ubuntu or another distro, who would provide the support?

[oddballstocks]

I understand your point, but, say if your average company is running Ubuntu or another distro, who would provide the support?

 

Well Ubuntu provides professional support for one.  I guess I'm wondering why a client needs a support contract?  In most cases the people running these systems are their own support.  To setup and install a large base of servers there will be a dedicated Linux staff person who supports the systems.  Secondary support would be needed if they ran into a problem they couldn't solve.

 

There's also managed support for cloud based hosting (like EC2, Rackspace, Digital Ocean etc), but I'm pretty sure that's not what RedHat provides.

 

As someone who's been involved in opening trouble tickets with Oracle I've been less than impressed with support.  It's a catch-22.  When a group needs support it's usually related to a very esoteric issue.  When this happens the company offering support is usually unable to help because the problem is so narrow and specific.  For general problems online resources answer most questions, or a competent sysadmin can answer the rest.  The very narrow support issues I've seen submitted always end in the exact same resolution, the company admits that the user has found a bug and the issue is forwarded to developers with the hope that it might be patched in a future release.  For clients the result is always the same, a workaround is needed.

[Guest valueInv]

How about switching from Red Hat to Oracle or Windows? Not talking about switching between Red Hat and other distros-not even considering that.

 

Um..are you sure you know what you're talking about here?  Oracle is a database that can run on both Windows and Linux.  Oracle also owns Java which is a platform dependent language (sure, maybe I drank the kool-aid back in the 90s…).  Do you mean Solaris, the operating system from Sun that was acquired by Oracle?

 

So you're asking about switching between Windows and Linux.  Organizations build their systems around their OS choices, so a Windows shop would be using .NET, C#, Sharepoint etc.  These tools are Microsoft only, this is why MS has a moat.  A place that builds their billing system in .NET cannot use anything but Windows and .NET.  Someone might argue Mono is a replacement, but that's probably a valid argument for the geek segment trying to bootstrap a .NET application.

 

Linux is similar, if someone were to build a custom desktop application in Linux it would be very difficult to port to Windows.  But that said if someone built a custom desktop app in Linux it's hard to imagine what distro specific hooks they'd include that locked it down to RedHat.  Maybe if you're talking about a place writing device drivers or something it would be RedHat specific, but otherwise it would be Linux (not RedHat) specific.

 

Here's the thing about moats with Linux, I think what people miss is the people working with Linux.  I'll come out of the closet on this one, back in the 90s I was a huge Linux/OSS gearhead.  I loved the movement and the ideals, a lot of this carries over to now, this is why I publish my ideas for free on a blog.  Anyone remember the meme "Information wants to be free"?  People who were/are Linux gurus aren't tied to a distro, sure they have preferences but they can work in any.  The systems are similar.  I used RedHat in the 90s, then switched to OpenBSD for a while.  I'm working on a side project startup, we're using Ubuntu.  Anything I knew on RedHat (minus rpm) works the same on Ubuntu, except Ubuntu is much slicker.  The apt-get system blows the pants off rpm.  System admins who are into Linux are into Linux, they're not into Redhat.  This is different from Windows admins who know Windows and think poorly of Linux.

 

My experience in the enterprise environment is that most large companies are using Solaris.  Sun did a bang up job selling the enterprise strength of Solaris back in the 90s.  My experience with sysadmins is that the ones who know Solaris think nothing else compares.  I can't imagine a bunch of Solaris admins switching to Linux, because of course Linux isn't a true *nix…

 

This was a heck of a digression!  I didn't touch a console for about six years, and seriously for about eight years and coming back into this now I'm really impressed with where things are.  I setup a server tonight in under 15m with a complete database and web stack.  I remember 10 years ago battling this all day messing around with make files.

 

To bring this back to GARP..  Believe it or not I could invest in a GARP company on a few conditions, if the company were small and in a growing market.  The second is if I personally knew the CEO and executive team, and knew the industry very well.  I have seen some growth-y investments in industries I know well that I wouldn't mind investing in.  Of course the pre-condition is I would want some sort of safety with it, this comes with small companies which always are underpriced for growth.

 

Whoa! What you are talking about stopped being true a decade ago.

 

Linux has pretty much killed Solaris. Oracle bought the remnants, but judging by their earnings, even that is struggling. 

Red Hat pretty much built the company by stealing Solaris customers. They were an order of magnitude cheaper than Solaris.

I know the history very well. I used to work for Red Hat.

 

BTW, Oracle offers its own Linux:

http://www.oracle.com/us/technologies/linux/overview/index.html

 

I believe its based on CentOS. Oracle also tried to undercut Red Hat by offering to support RHEL but didn't get anywhere with it.

 

For a full discussion of Red Hat's  moat, see the Red Hat thread.

 

I'll add one of more thing. The Cloud is disrupting everybody - Red Hat, Oracle, Dell, VMWare, etc. I call it "The Great Disruption". They are all scrambling to adapt. Its far from clear at the moment who will be successful in adapting.

 

PS: rpms are just the base of Red Hat's installation system. They have built more sophisticated installers on top of it at least 7-8 years ago. Your information is very dated, my friend.

[oddballstocks]

How about switching from Red Hat to Oracle or Windows? Not talking about switching between Red Hat and other distros-not even considering that.

 

Um..are you sure you know what you're talking about here?  Oracle is a database that can run on both Windows and Linux.  Oracle also owns Java which is a platform dependent language (sure, maybe I drank the kool-aid back in the 90s…).  Do you mean Solaris, the operating system from Sun that was acquired by Oracle?

 

So you're asking about switching between Windows and Linux.  Organizations build their systems around their OS choices, so a Windows shop would be using .NET, C#, Sharepoint etc.  These tools are Microsoft only, this is why MS has a moat.  A place that builds their billing system in .NET cannot use anything but Windows and .NET.  Someone might argue Mono is a replacement, but that's probably a valid argument for the geek segment trying to bootstrap a .NET application.

 

Linux is similar, if someone were to build a custom desktop application in Linux it would be very difficult to port to Windows.  But that said if someone built a custom desktop app in Linux it's hard to imagine what distro specific hooks they'd include that locked it down to RedHat.  Maybe if you're talking about a place writing device drivers or something it would be RedHat specific, but otherwise it would be Linux (not RedHat) specific.

 

Here's the thing about moats with Linux, I think what people miss is the people working with Linux.  I'll come out of the closet on this one, back in the 90s I was a huge Linux/OSS gearhead.  I loved the movement and the ideals, a lot of this carries over to now, this is why I publish my ideas for free on a blog.  Anyone remember the meme "Information wants to be free"?  People who were/are Linux gurus aren't tied to a distro, sure they have preferences but they can work in any.  The systems are similar.  I used RedHat in the 90s, then switched to OpenBSD for a while.  I'm working on a side project startup, we're using Ubuntu.  Anything I knew on RedHat (minus rpm) works the same on Ubuntu, except Ubuntu is much slicker.  The apt-get system blows the pants off rpm.  System admins who are into Linux are into Linux, they're not into Redhat.  This is different from Windows admins who know Windows and think poorly of Linux.

 

My experience in the enterprise environment is that most large companies are using Solaris.  Sun did a bang up job selling the enterprise strength of Solaris back in the 90s.  My experience with sysadmins is that the ones who know Solaris think nothing else compares.  I can't imagine a bunch of Solaris admins switching to Linux, because of course Linux isn't a true *nix…

 

This was a heck of a digression!  I didn't touch a console for about six years, and seriously for about eight years and coming back into this now I'm really impressed with where things are.  I setup a server tonight in under 15m with a complete database and web stack.  I remember 10 years ago battling this all day messing around with make files.

 

To bring this back to GARP..  Believe it or not I could invest in a GARP company on a few conditions, if the company were small and in a growing market.  The second is if I personally knew the CEO and executive team, and knew the industry very well.  I have seen some growth-y investments in industries I know well that I wouldn't mind investing in.  Of course the pre-condition is I would want some sort of safety with it, this comes with small companies which always are underpriced for growth.

 

Whoa! What you are talking about stopped being true a decade ago.

 

Linux has pretty much killed Solaris. Oracle bought the remnants, but judging by their earnings, even that is struggling. 

Red Hat pretty much built the company by stealing Solaris customers. They were an order of magnitude cheaper than Solaris.

I know the history very well. I used to work for Red Hat.

 

BTW, Oracle offers its own Linux:

http://www.oracle.com/us/technologies/linux/overview/index.html

 

I believe its based on CentOS. Oracle also tried to undercut Red Hat by offering to support RHEL but didn't get anywhere with it.

 

For a full discussion of Red Hat's  moat, see the Red Hat thread.

 

I'll add one of more thing. The Cloud is disrupting everybody - Red Hat, Oracle, Dell, VMWare, etc. I call it "The Great Disruption". They are all scrambling to adapt. Its far from clear at the moment who will be successful in adapting.

 

PS: rpms are just the base of Red Hat's installation system. They have built more sophisticated installers on top of it at least 7-8 years ago. Your information is very dated, my friend.

 

I guess it is then….not just let me get on my rocker and talk about the good old days…

 

I knew Oracle purchased Sun, my company does a lot with Java, this caused a minor uproar.  I do still know very large companies that have Solaris in their production environments running thousands of servers.  But at their point the inertia is so strong it would be hard to move to Linux.  This was my point, I don't see that same inertia with Red Hat itself, I do with Linux, but not the Red Hat variety.  As for Red Hat stealing Oracle's customers….everyone was stealing Sun's customers!  Sun had been limping along every since the dot-com crash, Oracle just happened to take the pain away..

 

I was aware that RPM is the Redhat Package Manager, I was just noting that it was a mess and I enjoy the apt-get structure much better.  Maybe it's improved since I've been away.

 

We agree though that the Cloud has changed all of this…

 

That last statement is the crux of growth investing, invest while things are flying, but be able to identify the turning point and get out.  This is hard, has the Cloud really changed it, or will it be a driver for RedHat's increased earnings?  I don't know, and getting it wrong is the difference between a good investment and a loss.

[Yours Truly]

How about switching from Red Hat to Oracle or Windows? Not talking about switching between Red Hat and other distros-not even considering that.

 

Um..are you sure you know what you're talking about here?  Oracle is a database that can run on both Windows and Linux.  Oracle also owns Java which is a platform dependent language (sure, maybe I drank the kool-aid back in the 90s…).  Do you mean Solaris, the operating system from Sun that was acquired by Oracle?

 

So you're asking about switching between Windows and Linux.  Organizations build their systems around their OS choices, so a Windows shop would be using .NET, C#, Sharepoint etc.  These tools are Microsoft only, this is why MS has a moat.  A place that builds their billing system in .NET cannot use anything but Windows and .NET.  Someone might argue Mono is a replacement, but that's probably a valid argument for the geek segment trying to bootstrap a .NET application.

 

Linux is similar, if someone were to build a custom desktop application in Linux it would be very difficult to port to Windows.  But that said if someone built a custom desktop app in Linux it's hard to imagine what distro specific hooks they'd include that locked it down to RedHat.  Maybe if you're talking about a place writing device drivers or something it would be RedHat specific, but otherwise it would be Linux (not RedHat) specific.

 

Here's the thing about moats with Linux, I think what people miss is the people working with Linux.  I'll come out of the closet on this one, back in the 90s I was a huge Linux/OSS gearhead.  I loved the movement and the ideals, a lot of this carries over to now, this is why I publish my ideas for free on a blog.  Anyone remember the meme "Information wants to be free"?  People who were/are Linux gurus aren't tied to a distro, sure they have preferences but they can work in any.  The systems are similar.  I used RedHat in the 90s, then switched to OpenBSD for a while.  I'm working on a side project startup, we're using Ubuntu.  Anything I knew on RedHat (minus rpm) works the same on Ubuntu, except Ubuntu is much slicker.  The apt-get system blows the pants off rpm.  System admins who are into Linux are into Linux, they're not into Redhat.  This is different from Windows admins who know Windows and think poorly of Linux.

 

My experience in the enterprise environment is that most large companies are using Solaris.  Sun did a bang up job selling the enterprise strength of Solaris back in the 90s.  My experience with sysadmins is that the ones who know Solaris think nothing else compares.  I can't imagine a bunch of Solaris admins switching to Linux, because of course Linux isn't a true *nix…

 

This was a heck of a digression!  I didn't touch a console for about six years, and seriously for about eight years and coming back into this now I'm really impressed with where things are.  I setup a server tonight in under 15m with a complete database and web stack.  I remember 10 years ago battling this all day messing around with make files.

 

To bring this back to GARP..  Believe it or not I could invest in a GARP company on a few conditions, if the company were small and in a growing market.  The second is if I personally knew the CEO and executive team, and knew the industry very well.  I have seen some growth-y investments in industries I know well that I wouldn't mind investing in.  Of course the pre-condition is I would want some sort of safety with it, this comes with small companies which always are underpriced for growth.

 

Whoa! What you are talking about stopped being true a decade ago.

 

Linux has pretty much killed Solaris. Oracle bought the remnants, but judging by their earnings, even that is struggling. 

Red Hat pretty much built the company by stealing Solaris customers. They were an order of magnitude cheaper than Solaris.

I know the history very well. I used to work for Red Hat.

 

BTW, Oracle offers its own Linux:

http://www.oracle.com/us/technologies/linux/overview/index.html

 

I believe its based on CentOS. Oracle also tried to undercut Red Hat by offering to support RHEL but didn't get anywhere with it.

 

For a full discussion of Red Hat's  moat, see the Red Hat thread.

 

I'll add one of more thing. The Cloud is disrupting everybody - Red Hat, Oracle, Dell, VMWare, etc. I call it "The Great Disruption". They are all scrambling to adapt. Its far from clear at the moment who will be successful in adapting.

 

PS: rpms are just the base of Red Hat's installation system. They have built more sophisticated installers on top of it at least 7-8 years ago. Your information is very dated, my friend.

 

I guess it is then….not just let me get on my rocker and talk about the good old days…

 

I knew Oracle purchased Sun, my company does a lot with Java, this caused a minor uproar.  I do still know very large companies that have Solaris in their production environments running thousands of servers.  But at their point the inertia is so strong it would be hard to move to Linux.  This was my point, I don't see that same inertia with Red Hat itself, I do with Linux, but not the Red Hat variety.  As for Red Hat stealing Oracle's customers….everyone was stealing Sun's customers!  Sun had been limping along every since the dot-com crash, Oracle just happened to take the pain away..

 

I was aware that RPM is the Redhat Package Manager, I was just noting that it was a mess and I enjoy the apt-get structure much better.  Maybe it's improved since I've been away.

 

We agree though that the Cloud has changed all of this…

 

That last statement is the crux of growth investing, invest while things are flying, but be able to identify the turning point and get out.  This is hard, has the Cloud really changed it, or will it be a driver for RedHat's increased earnings?  I don't know, and getting it wrong is the difference between a good investment and a loss.

 

All this debating on RH just gives me more reasons NOT to invest in the technology field.. Just way too much change and unpredictability in the long-term (at least 5 years)..

[PatientCheetah]

How about switching from Red Hat to Oracle or Windows? Not talking about switching between Red Hat and other distros-not even considering that.

 

Um..are you sure you know what you're talking about here?  Oracle is a database that can run on both Windows and Linux.  Oracle also owns Java which is a platform dependent language (sure, maybe I drank the kool-aid back in the 90s…).  Do you mean Solaris, the operating system from Sun that was acquired by Oracle?

 

So you're asking about switching between Windows and Linux.  Organizations build their systems around their OS choices, so a Windows shop would be using .NET, C#, Sharepoint etc.  These tools are Microsoft only, this is why MS has a moat.  A place that builds their billing system in .NET cannot use anything but Windows and .NET.  Someone might argue Mono is a replacement, but that's probably a valid argument for the geek segment trying to bootstrap a .NET application.

 

Linux is similar, if someone were to build a custom desktop application in Linux it would be very difficult to port to Windows.  But that said if someone built a custom desktop app in Linux it's hard to imagine what distro specific hooks they'd include that locked it down to RedHat.  Maybe if you're talking about a place writing device drivers or something it would be RedHat specific, but otherwise it would be Linux (not RedHat) specific.

 

Here's the thing about moats with Linux, I think what people miss is the people working with Linux.  I'll come out of the closet on this one, back in the 90s I was a huge Linux/OSS gearhead.  I loved the movement and the ideals, a lot of this carries over to now, this is why I publish my ideas for free on a blog.  Anyone remember the meme "Information wants to be free"?  People who were/are Linux gurus aren't tied to a distro, sure they have preferences but they can work in any.  The systems are similar.  I used RedHat in the 90s, then switched to OpenBSD for a while.  I'm working on a side project startup, we're using Ubuntu.  Anything I knew on RedHat (minus rpm) works the same on Ubuntu, except Ubuntu is much slicker.  The apt-get system blows the pants off rpm.  System admins who are into Linux are into Linux, they're not into Redhat.  This is different from Windows admins who know Windows and think poorly of Linux.

 

My experience in the enterprise environment is that most large companies are using Solaris.  Sun did a bang up job selling the enterprise strength of Solaris back in the 90s.  My experience with sysadmins is that the ones who know Solaris think nothing else compares.  I can't imagine a bunch of Solaris admins switching to Linux, because of course Linux isn't a true *nix…

 

This was a heck of a digression!  I didn't touch a console for about six years, and seriously for about eight years and coming back into this now I'm really impressed with where things are.  I setup a server tonight in under 15m with a complete database and web stack.  I remember 10 years ago battling this all day messing around with make files.

 

To bring this back to GARP..  Believe it or not I could invest in a GARP company on a few conditions, if the company were small and in a growing market.  The second is if I personally knew the CEO and executive team, and knew the industry very well.  I have seen some growth-y investments in industries I know well that I wouldn't mind investing in.  Of course the pre-condition is I would want some sort of safety with it, this comes with small companies which always are underpriced for growth.

 

Does anyone has any good GARP ideas right now? small/medium sized companies in a growing market with reasonable valuation?

[DamienC]

I have attached a screen following the criteria outlined by the initiator of this thread (high 5 and 10 years average ROE and less than 50% free float as a proxy of insider ownership). The 5 stocks version is rebalanced on a quarterly basis and has a final momentum sort. In the attachment you will see the picks before the final momentum filter.

 

The perf presented is survivorship bias free.

 

Not using it but using many GARP screens blended with many other screens exploiting other market inefficiencies (size, value, momentum, quality...)

 

All data from Bloomberg

 

Garp_Ex..pdf

[CorpRaider]

Source Capital owns LKQ and I think Gayner does too.  They are both largely focused on mid to small cap quality/GARP names, generally speaking (with obvious exceptions, like MKL owning BRK).  KMX and BBBY are two potential ideas that spring to my mind.

[Palantir]

Thinking about ACGL, but not knowledgeable enough about insurance yet.

[PatientCheetah]

Recently bought YNDX, it's on the pricier end of GARP investing but the growth and ROIC are incredible.

[PatientCheetah]

For GARP type of opportunities, I think you want to stay within industrials are on the higher end of ROIC because you want to have enough structural persistence in order to grow into your valuations. Anyone else agreeing with me?

[LC]

xerodex, I agree with you. I don't like companies showing high ROIC unless the underlying industry has characteristics which would lead to high ROICs (exception: structural differences apart from other industry participants). Otherwise, I think more often than not the company is experiencing a temporary boon which will ultimately revert to the mean of the industry's characteristics, and I cannot time when that will happen. 

[no_free_lunch]

There are several of these in Canada right now.  Shamelessly stolen from Donville Kent :) 

 

- Macdonal Detwiller MDA.TO

- CGI Group  BID

- Home Capital Group HCG.TO

- Constellation Software (CSU.to) - not sure if I would call this GARP anymore but I am putting it out there as I think it is one of Canada' greatest stocks.  At least something to have on your watchlist.

 

In the US, it is a bit tougher.  I am looking at PCP right now but have been reading mixed things on them.  Mainly that there ROE has dropped considerably over the past few years.

 

Anyone have any other suggestions?