Yahoo Finance 7 Things Fund Managers Ask Company Managers
Here's what investing pros are really looking for.
Oh, to be a fly on the wall when fund managers grill company executives. Lucky day! You can be a fly. Thanks to archived recordings of management discussions with analysts and the media, you can listen to the investor relations version of podcasts all day. But who has the time? Let's cut to the chase. Here's what smart fund managers want to know from company management. Scan transcripts for these questions and answers, and you'll see what investing pros are really looking for.
What are the numbers?
The most important thing is evidence that supports or contradicts the model analysts have already constructed about the company, says Montieth Illingworth, president of Montieth & Company, a New York investment relations communication consulting firm. "All analysts build a model, and they have to have the most up-to-date numbers put into their model to do discounted cash-flow valuations, which is the valuation of the stock today based on expected earnings. They put all that into a model and come up with their own estimate for earnings per share," Illingworth says.
Is management focused?
Brian Hennessey, portfolio manager at Alpine Woods Capital Investors in Purchase, New York, listens between the lines for evidence of managers' ability to focus on long-term results. "We really do not want to hear a complete change in strategy from one quarter to the next. That's an indication that something's not right, that's showing up in a complete change in strategy. ... Either we can't trust what they're saying, or they're going through a transition that leads to more volatility," he says.
Are they buying back stock?
Hennessey perks up when a company says valuations for mergers and acquisitions are not where management wants them to be, so they are going to return some excess cash in the form of dividends. "We like to hear that there's discipline in sticking to their criteria and they're thinking about shareholders. We want to hear a consistent conservatism when it comes to capital allocation. If they say they're going to buy back stock in line with their long-term goals, we like to see that," he says.
Did they anticipate?
Consistency is a key factor for Douglas Burtnick, Philadelphia-based deputy head of North American equities for Aberdeen Asset Management. "A lot of times, companies do dumb things. Whether they're chasing after an acquisition that we think they're overpaying for or if they miss a product cycle -- like offering sweaters in the wrong style and color for winter -- these things are pertinent. Anyone can make a misstep, but what if they're constantly making mistakes and recovering?" Burtnick says. What analysts don't want to hear from managers is that they never saw something coming.
What about those SEC filings?
Consultants say analysts and fund managers often ask for the backstory behind recent Securities and Exchange Commission filings, including disclosures that some C-suite executives have bought -- or more distressingly, sold -- large shares of company stock. And analysts may want to know how many hedge funds own the company's stock. That's a peek into the vulnerabilities that other investors are picking up on, consultants say.
Are they straight shooters?
Analyst and investor calls are management's chance to build trust, and if they don't seem to take that seriously, it shows. "The whole notion of the quality of earnings is key because you want to get the sense that management is giving you a straight deal," Illingworth says. "You want to see that the company is well-prepared. It can take up to 200 hours to prep. But some companies don't prepare at all."
Is it time to sell?
Winging an analyst or investor call goes beyond hubris. It can prompt institutional investors to disengage from the company and ease out of their holdings. "When a company is doing a bad job, analysts know that, and it will be reflected in stock price as well as how deep the ownership is and how long they hold," Illingworth says.
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