How Does Stephanie Link Selects Her Stock Picks.
For all of those who don’t know who Stephanie Link is. Stephanie Link is the Director of Research and Vice President of Strategy at TheStreet.com, an investment and financial news website founded by Jim Cramer from Mad Money. Stephanie’s work ethic and superior strategy in stock picking has been remarkable during the years, that is the reason Jim Cramer is constantly debating about stock picks with her. Stephanie has told on interviews that her daily routine starts with a 4am talk with Jim Cramer to discuss about the markets and stock portfolio strategies. What makes Stephanie Link remarkable is her openness and transparency she brings while talking about stocks.
On a recent interview on one of my favorite podcasts by Frank Curzio at S&A Investor Radio, Stephanie Link discussed about some of the strategies she uses to find good stock picks. There is tremendous information that we can retain and use in our own stock picking strategies and I think the interview will bring enormous insight on what happens at Stephanie’s head while making her stock picking decisions.
You can listen to the interview at Stansberry Research Radio Talk.
So… How Does Stephanie Link Selects Her Stock Picks?
Stephanie Link starts by focusing on the macro (macroeconomy), what are the outlooks of the economy for this selected sector? will interest rates increase in the short-term? Are some of the questions she asks herself. Secondly she performs comparative analysis, meaning that she compares the company against its peers, it may be that there is a better company where you should put your money than the one selected. She then proceed to check the company’s fundaments, here is where she analyses the balance sheet, income statements, and cash flows.
To gain a better understanding i will include an excerpt of Stephanie Link’s Interview:
Stephanie: “First what we do is—the way I approach it is where do I want to be? What sectors do I want to be in? Where do I think the economy is? Where are we in the cycle? What’s happening to interest rates? What’s happening here in the US growth-wise? What’s happening overseas? And so where do we want to be? Do we want to be more US-centric, more internationally exposed? Do we want to be in the cyclical sectors because the economy is going to improve? Do we want to be in the defensive sectors because we believe we’re ready for a pullback? And so that’s the first kind of thing that I think about.
I think that the second thing is then when we do decide that we want to be in a certain industry—and let’s just call it non-res construction as an example. I think non-residential construction is going to continue to see improvement this year, and it’ll be slow, but it is—it’s going to be gradual, and so—and we’re hearing it from a number of companies: Ingersoll Rand, United Technologies, Johnson Controls. HVAC—heating, ventilation, air conditioning is really on the rise, and it’s on the rise—it had been improving in the residential markets with housing. That has paused, but it actually—on the flip-side, non-residential construction has started to pick up. And so when kind of I’ve done a lot of work, we look at the Architectural Billings Index—again, I listen to all these companies. And then I really just see, okay, who is best in breed? Where are the valuations? Where are the valuations relative to where they have traded in the past? Are they cheap? What is the balance sheet? Is there a possibility for shareholder returns, buybacks, and dividends and M&A and that sort of thing? And of course you look at earnings and you model out a lot of different things.
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And what I really rely very heavily on is trying to find the best one at a slight discount. One thing that Jim taught me very early on is you always want to try and find the number one or number two player in the industry. You don’t want to go for the four, five, or six because yeah, there might be more leverage there if they get it right—if they go from really bad to less bad, but why do you really want to even own less bad? If you can own really great at a slight discount and you actually think that there’s upside in the cycle you’ll win on that as well.
So there’s a lot of ways we look at stocks and there are a lot of ways that we—you know, we put them into the portfolio. And again I would say it’s a combination of kind of macro, big picture, top-down thinking and also a lot of detailed, fundamental analysis, so bottoms-up thinking as well.” End of Quote
I think one of the best lessons to be learned from Stephanie’s interview is to be humble. Stephanie expresses that you never stop learning when it comes to investing. She also emphasizes on learning to recognize when you are wrong and learn from those mistakes to make better decisions in the future.
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Let me know what you think of Stephanie Link’s Investment Process in a comment below.