A couple of years ago I read an interview made by @JRogrow to Jerome Dodson (founder of Parnassus Investments).
The quote below stuck with me and molded by investment philosophy:
"Many of our biggest winners have been companies that operate in cyclical industries with secular growth drivers. When their business cycle turns down, investors become overly pessimistic and extrapolate the current negative conditions. They forget the cycle will eventually turn, throw in the towel on the secular growth drivers, and engage in panic selling, pushing the stock to bargain-basement levels.
But eventually the cycle turns, and the stock soars higher. It’s difficult to have the courage to buy when everyone else is selling, and this has been an important part of our success."
Since then, I've tried to look for similar setups: cyclical (but secular) businesses that the market disregarded because there was no "inflection" in sight.
Results of said set-ups (thus far), have been pretty good:
1. Keysight Technologies. $KEYS — 60% CAGR since publish date
2. Medpace $MEDP — 42% CAGR
3. ASML $ASML — 26% CAGR
4. Texas Instruments $TXN — 16% CAGR
5. Deere & Company $DE — 16% CAGR
Finding these is tough and patience will be required due to the non-linearity of returns, but they can be pretty profitable (more so on a risk-adjusted basis).
Any similar setups come to mind today? Feel free to leave them in the comments!
