• David Samra, managing director of Artisan Partners, has been handily outperforming his benchmark equivalent for almost 20 years.
  • At heart, Samra is a pure-blooded value investor relying heavily on disparities between the price and intrinsic value of a business to make investment decisions.
  • A company must meet four criteria in order for him to consider an investment, and he says it’s “very hard” for a business to check all the boxes.
  • Today, Samra thinks select companies in four areas of the market have the opportunity to outperform coming out of the coronavirus crisis.
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David Samra, managing director of Artisan Partners and founding partner/lead portfolio manager of the Artisan International Value Fund (ARTKX), has been outperforming conventional benchmarks since 2002.

Below is a chart of the Artisan International Value Fund juxtaposed against comparable benchmarks. It shows outperformance of nearly 4 percentage points since inception. Samra has been at the helm of the fund the entire time.

At his core, Samra is a full-blooded value investor.

“When I approach an equity, I’m trying to get something for nothing — something that the market is not willing to pay for,” he said on “The Meb Faber Show” podcast. “We’re value investors, so the primary driver of our behavior is finding a company that trades at a discount to intrinsic value.”

Samra added: “The value of a business is the present value of its future cash flows.”

But just because Samra defines himself as a value investor doesn’t mean he’s accepting of all the traditional aspects of the distinction. He’s not interested in investing in cheap companies if returns on capital are low, growth is stagnant, and leverage is high.

To him, companies with those characteristics are more likely to be value traps — businesses that appears to be cheap but are poor investments due to ineffective business practices, incompetent management, high costs, etc. — rather than a winning position.

For that reason, Samra adheres closely to a set of four simple criteria that guide every investment decision he makes.

“If we do our job correctly, at the end of this process, we have a portfolio of undervalued securities of good companies generating cash and management making good capital allocation decisions on a day-in and day-out basis,” he said. “We think that’s a powerful combination of those 4 variables: cheap stock, good business, strong balance sheet, good management team.”

He added: “It’s very hard to find those factors in combination.”

What’s more, Samra also employs a concentrated approach allocating 40% to 50% of capital in his top 10 picks. As of April 30th, those companies were: Samsung Electronics Co Ltd, ABB Ltd, Compass Group PLC, UBS Group AG, NAVER Corp, RELX PLC, Fresenius Medical Care AG & Co KGaA, Arch Capital Group Ltd, Novartis AG, and Cie Financiere Richemont SA.

4 opportunities in hard-hit areas

“A value investor really hasn’t had the ability to take advantage of securities prices that are grossly out-of-whack with long term value,” Samra said. “Now you’re getting an opportunity to do that in certain parts of the market.”

To him, the areas of the market that have been hardest hit by the coronavirus are “obvious” places to look for value-oriented investors.

“As we come out of this — when we come out of this — those securities that are deeply undervalued should outperform securities that really have had elevated valuations as we go through this,” he said.

For that reason, he thinks good places to look for opportunities are in: travel and leisure, oil and gas, “anything that’s big steel” (auto, airplanes, agricultural equipment), and financials.

Although he thinks these areas of the market look enticing, Samra says to be “very choosy” when vetting potential investments. Not all are created equal, so adhere to the four-part criteria he utilizes himself before making a decision.

For interested parties, here are four exchange-traded funds designed to track the areas of the market laid out by Samra above:

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