Brian Bares is Bullish on Stratasys, Inc

 

Brian Bares, Bares Capital Management – The Small Cap Advantage

Brian Bares is  author of The Small-Cap Advantage: How Top Endowments and Foundations Turn Small Stocks into Big Returns, and the founder & portfolio manager at Bares.

Bares leans more toward the Munger approach and focusses on the small/micro-cap space

• Small Caps
  • Better compounders
  • Persistently outperform larger cap stocks
  • More good ideas
  • Less market efficiency in prices
  • Less or No analyst coverage
  • 3k-4k companies smaller than those falling in the Russell 2000
  • Most mangers typically start with a screen
    • Bares leary of ‘rear view mirror’ aspect
    • Screen leads more to ‘just cheap’
    • Bares uses a ‘Moats & Management’ search

1. First search for 40 ‘best’ companies in small/micro space
2. Then get into the valuation of this group
3. Pare down to the ‘best’ 10 options

• Long Term price is approximately the long term growth in business value per share

 

• Moat +Management=Quantitative
  • Find before other managers
  • Find before the results are in the 10-K
  • 8 analysts are constantly on the road
  • Intentionally stay small
  • Note: over 80% of market risk is diversified away in first 8 stocks (assuming they are un-correlated)

 

• Example is Stratasys, Inc. (NASDAQ:SSYS)
  • Manufacture 3-D printers
  • Nascent industry & growing quickly
  • ‘Razor Blade’ model
  • Came from #2 position (Former #1, 3-D Systems dropped the ball) now has +41% market share
  • The management invested the technology
  • Deal with HP for branding of printers
  • Important part of Moat – also have established distribution network
  • Q&A
    • Turnover?
      • Around 30% – less worry for them as they manage institutional money
• Is it different in the post – financial crisis?
  • Some companies have had a level of trouble, but many they invest in have no debt
• Experience with takeovers of companies you are in?
  • ½ dozen or so (not always a good deal)
• Mistakes you’ve made?
  • In the sales area – part of the story that is not working/growing
• Value vs. Growth?
  • No distinction – linked

 

Value Investor Conference: Omaha, Nebraska – May 4rd, 2012

Dustin Hunter, SunRift Capital Partners (www.sunriftcp.com)

 (These notes are to the best of my recollection and trusty ink pen. Discrepancies are due to my error in understanding & transcribing.)