By Xavier Brenner
A history buff and antique book enthusiast, Owen Cupp brings a long view to his style of investing. As manager of the New Leaders portfolio, Cupp draws on market statistics going back over 12 decades to inform his trend analysis. Then, he sizes up stocks and market movements with some sophisticated technical analysis. Xavier Brenner recently caught up with Cupp to discuss his approach to investing.
Your Covestor New Leaders portfolio uses an interesting techno-fundamentals approach, drawing on your knowledge of U.S. market statistics dating back to the 1880s. Can you talk about this in greater detail?
There have been over two dozen identifiable economic cycles since the great industrial expansion in the United States and introduction of mass-produced, engineered products. Major examples are the telephone, radio, light bulb, automobile, airplane, computer, and home appliances.
In all of these major cycles, the most talented innovators and entrepreneurs offered products during times of uncertainty and succeeded. Fundamentals are critical.
Technical price pivots can be identified in monthly price and volume patterns throughout these economic cycles. Institutional buyers accumulate leaders in the growth phase and create the price patterns. The accumulation is a key part of price growth and a wonderful opportunity for my portfolio to identify prospective investments.
How has your analysis of institutional stock ownership patterns informed your investing decisions? Any interesting examples from the recent past?
Many equity price trends are determined by accumulation and distribution activities of large institutions. This activity drives volume and is a measurable characteristic of supply and demand for equity prices.
One the examples that comes to mind is Financial Engines Inc. (FNGN). Unique institutional ownership of the stock, such as mutual funds, has increased over 30% for the last four quarters, and there have been over a dozen weeks of above average volume levels on price-up weeks. I don't have a crystal ball, but I believe that institutional demand exceeded supply at prior weekly price levels.
Why are you so heavily weighted in cash at the moment?
Stock market gurus such as James R. Keene one of J.P. Morgan’s first money managers, have emphasized that protecting account values during market corrections is critical to overall outperformance of a portfolio against the broader market. I concur.
The two top holdings of the Covestor New Leaders Growth portfolio are 3D Systems (NYSE: DDD) and Packaging Corporation of America (NYSE: PKG). Both of these companies have increased in quarterly and annual growth rates, return on equity ratios, and increasing mutual fund accumulation.
Each are also at new all-time monthly price highs, which is a technical level, the model seeks: new higher price highs. PKG is an innovative leader within the corrugated cardboard industry and recently acquired Boise Inc. (BZ). DDD is a leader in additive printing techniques and owns a tremendous product portfolio that potentially to help accelerate its earnings’ growth.
What's your macro-economic outlook for the U.S. going into the second half?
My outlook is positive for the United States. I think we are witnessing the country’s innovators in many industries stabilize and offer growth opportunities to their customers and investors. Uncertainty definitely abounds in no shortage, thus vigilance is always necessary as another crisis in some form will eventually appear. In the meantime, whenever that occurs, there are tremendous economic potentials for the country and for investors to share in.
What foreign markets look especially intriguing?
I think the US markets offer one of the most attractive avalue and there are many American companies taking advantage in international ventures with world market exposures. One stock, which the New Leaders Growth Model currently owns, is Oceaneering Intl LLC (NYSE: OII). OII is a growing deep underwater equipment supplier to multinational oil companies, such as Exxon Mobil Corp. (NYSE: XOM), discovering oil fields around the world in deep waters.
What do you do in your free time when you’re not making investment calls?
I enjoy collecting antique books, studying history, and golfing with friends and family.The investments discussed are held in client accounts as of September 22, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
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