(Runtime: 6:00. Read the audio transcript.)
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As investors grapple with AI disruption, geopolitical uncertainty and rapidly changing market leadership, David Atkins of Value Partners Investments says long-term wealth creation still comes from focusing on fundamentals rather than fads.
Speaking on the Soundbites podcast, Atkins said the attributes of successful companies remain remarkably straightforward.
“We’re looking for those businesses that are difficult to live without, difficult to compete with, difficult to replicate,” he said.
He cited railroads and financial institutions as examples of companies that were decades in the making and have become woven into the fabric of modern society.
“Think of a bank. These are businesses that people use each and every day. They probably helped you buy your first home,” he said. “Those are meaningful businesses that have been around for 100 years and will likely be around for another 100.”
He said he focuses on real businesses with strong financial capacity to succeed — ones with higher margins and good revenue growth.
“High margin means they’re onto something,” he said. “They’re doing something meaningful. People are willing to pay for it.”
Rather than trying to predict every technological, regulatory or societal disruption, Atkins prefers to own durable businesses that can adapt to change.
“They’re going to be able to weather through the storms you can’t necessarily foresee,” he said.
Atkins also examines corporate management closely, digging into the track record of senior executives, especially when it comes to their allocation of capital.
“We’re looking for teams that are aligned with shareholders, ones that are focusing on the business over the long term and looking to grow that business in a reasonable way without taking excessive risks,” he said.
“We want those management teams to return capital to shareholders now through dividends and growing dividends.”
He cited Salesforce as an example of a company that has made some positive investor-oriented decisions, including the recent $25-billion share buyback.
“That’s a management board decision that I can really stand behind, that I really believe is going to be a good opportunity for shareholders over the long term.”
He said investors have placed less emphasis on valuation in recent years, favouring themes and momentum. Even as a value investor, he acknowledges that quality businesses often command higher multiples than they once did.
“I know that I’m paying more for businesses these days than I would have 15 years ago,” he said. “I’m willing to pay more for businesses today if their growth can justify it.”
He pointed to Alphabet as an example of a company trading at a valuation he might not have accepted 15 years ago, but whose growth prospects justify a higher multiple.
Ultimately, he said, successful investing comes down to owning quality businesses at reasonable prices.
“We’re looking to create wealth for individuals through business ownership,” he said. “It’s so important to focus on the best businesses at reasonable prices. And that’s really how you’re going to create wealth for clients over the long term.”
He said the current environment is a challenging one for investors, but they would do well to focus on quality businesses and steady growth.
“The world is always chaotic,” he said. “But sticking to that strategy is so important. If you do that, you really can find opportunities.”
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This article is part of the Soundbites program, powered by Canada Life. The article was written without sponsor input.