In valuing a business, SAM seeks companies with an asymmetric risk/reward profile (“Steinberg Stocks”), where SAM believes the risk of permanent loss of capital is small while the opportunity to grow capital on an annualized basis by 18-24% over a three to five-year investment horizon is significant. In addition, for each investment a "free call" is identified presenting an incremental opportunity for an outsized return in excess of the 18-24% annualized return target.
Key characteristics of a Steinberg Stock include:
- Capital Preservation: Steinberg Stocks have a low risk of permanent impairment of capital. Businesses with a low risk of permanent impairment of capital typically have a combination of the following: strong balance sheets, significant sustainable free cash flow generation, and strong core earnings power. They often have assets that provide a significant base of support for the value of the business.
- Capital Growth: Steinberg Stocks have the potential to generate annualized returns of 18-24% over a three to five-year period. Critical to the growth profile is the development of the investment’s earnings profile over a strategic horizon, and the free cash flow generation of the base businesses as identified by SAM’s fundamental analysis.
- Free Calls: Steinberg Stocks have one or more embedded free calls, events or developments not currently reflected in the security price that represent the opportunity to meaningfully increment the earnings power, asset value and/or cash flows of the business thereby providing an opportunity for outsized returns and further tilting the risk/reward profile in our clients’ favor.