By Al Meszaros, CFA, Partner

The Strategic Value Style of investing used by our firm is currently well positioned, I believe, to create significant wealth for our clients over time.
How do we apply our Strategic Value Style? Simply put, we buy growing blue chip quality companies at value prices.

First, we seek to buy a stock at 30%-40% below its true value (as described in Norm Klopp’s story about calculating a stock’s intrinsic value using CFROI). However, that alone is not enough.

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“We prefer to own market-leading companies in their respective sectors.”

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A company should also have demonstrated the ability to grow the value of its business each year. Thus, our portfolios are in a position to benefit from both the difference between the purchase price and the companies intrinsic value, as well as the annual growth in the value of its business.

Leadership Traits
Secondly, we prefer to own market-leading companies in their respective sectors. Market leaders demonstrate strong profitability, a proven ability to grow over time, and dominance in their industry. Size is important because it reflects an historic ability to win competitive battles, as well as the financial strength to withstand setbacks.

Finally, although we diversify among all 10 sectors of the economy, we prefer the ones growing faster. Recent examples are found in the services, financials, consumer, healthcare and technology sectors, when the price is right! In addition, our long-held discipline of face-to-face research visits helps us continually check our assumptions.

Enviable comparisons
This results in a portfolio of high quality stocks, with a below average price. The Price/Earnings Ratio (P/E) of our portfolio today is 19 vs. 26 for the S&P 500, and a P/E of 43 for the Barra Growth Index. The dividend yield is above average at 1.8% vs. 1.1% for the S&P 500. Our Strategic Value Style results in a portfolio well positioned to create significant wealth over time.

Strategic Value Style Vs. Other Measures
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1	P/E 2000	Dividend Yield	Return on Equity
Midwest Investment Mgt. Model Portfolio	18.9x	1.8%	22.3%
S&P 500	25.9x	1.1%	19.2%
S&P Barra Growth Index	43.3x	0.5%	29.8%

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Perspective is published quarterly by Midwest Investment Management LLC, Cleveland, Ohio for its clients, friends and members of the business community. All information contained herein reflects the opinions of the authors and does not necessarily constitute investment advice. Past results are no guarantee of future performance. ©2000, Midwest Investment Management LLC. All rights reserved.