A Wall Street Transcript Interview with David R. Bechtel, a Principal of Barrow Street Advisors and its affiliate Barrow Street Capital LLC: Finding Intrinsic Value Using Private Equity Metrics

Wall Street Transcript

67 WALL STREET, New York - May 28, 2014 - The Wall Street Transcript has just published its Investing Strategies Report. This special feature contains expert industry commentary through in-depth interviews with highly experienced, professional Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Secular Growth Themes - Small Cap Investing - All-Cap Investing - Bottom-Up Stock Selection - Quality of Business - Growth at a Reasonable Price - Long/Short Strategy - Investment Risk/Return

Companies include: Myriad Genetics Inc. (MYGN), Raytheon Co. (RTN), Smith & Wesson Holding Corp. (SWHC), Questcor Pharmaceuticals, Inc. (QCOR), Oshkosh Corporation (OSK), Marvell Technology Group Ltd. (MRVL), Fresh Del Monte Produce Inc. (FDP), True Religion Apparel Inc. (TRLG), Deckers Outdoor Corp. (DECK) and many others.

In the following excerpt from the Investing Strategies Report, an experienced portfolio manager discusses his investing methodology and top stock picks for investors:

TWST: Could you please begin with a brief history of Barrow's All-Cap Core Fund?

Mr. Bechtel: Sure. We launched the strategy back at the very end of 2008 to apply our private equity experience as a firm to public markets, started the strategy in the form of a limited partnership, and allocated firm capital to the strategy; and over the course of time we realized that the performance we were seeing from the strategy was exceptional. So we continued to invest more in it ourselves, and finally back in August of 2013, decided to convert the partnership into an open-end mutual fund.

TWST: Can you give us a closer look at the guiding strategy and core philosophy of the fund?

Mr. Bechtel: We seek to invest in a diversified portfolio of U.S. stocks, with an emphasis on finding companies that are very high-quality, trading at temporarily depressed valuations. So we are looking for a margin of safety when we purchase the company versus our assessment of its intrinsic value. And we are looking at both valuation and quality through the eyes of a private equity investor. We are emphasizing attributes like free cash flow generation, sales growth per unit of capital, the robustness of operating margins, return on assets. We generally dislike companies that use excessive leverage.

And on the valuation side, we also use private equity metrics. We are looking at things like the total value of the enterprise, the equity market capitalization, plus the company's indebtedness minus its cash holdings, and we are comparing the total enterprise value to the firm's ability to generate free cash flow. And if we can find a company that's generating a significant amount of free cash flow that we can buy at a low total enterprise value, we consider that to be a very solid investment proposition.

TWST: Can you give us a snapshot view of your portfolio, some of your holdings, and a closer look at one or two companies that best exemplify your strategy and philosophy?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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