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5 stock picks from a top investor

Karl Siegling is the fund manager behind listed investment company Cadence Capital (ASX: CDM). The Cadence Capital portfolio has returned 20.07% per annum before fees over the eight years and two months since its inception. It’s a significant outperformance compared with the All Ordinaries Accumulation Index that has returned 13.86% per annum over the same period.

Siegling recently penned an article that appeared in the December 2013 ASX Investor Update. It outlined what attributes he looks to identify in a potential investment and also discussed some of the portfolio’s holdings.

The five attributes Siegling looks for in each company he owns within the small to mid-cap space are: strong earnings growth and attractive valuation, a strong balance sheet with cash, a management team with a record of success, liquidity in the shares and a share price chart in uptrend.

Putting those attributes into practice, here are five stocks that Siegling has identified to meet his screen.

1)      RHG (ASX: RHG) is a financial services company that has a loan book which is in run-off.

2)      Retail Food Group (ASX: RFG) is the franchisor of a number of well-known food retailers including Brumby’s Bakeries and Crust Pizza.

3)      Flexigroup (ASX: FXL) also a financial services company that has just announced the purchase of competitor Thinksmart’s (ASX: TSM) Australian business, which will boost the company’s market share.

4)      McMillan Shakespeare (ASX: MMS) has been in the news a lot recently thanks (or rather no thanks) to the previous Labor government’s plans to change certain regulations that would have had a detrimental effect on McMillan. With these changes now unlikely to occur, the current beaten down share price could offer a buying opportunity.

5)      iiNet (ASX: IIN) has carved itself out a successful position in the ISP market, which continues to attract customers.

Foolish takeaway

While simply copying the portfolios of successful investors is rarely a successful strategy – given they may have entered a stock at a lower price and aren’t obliged to tell you if they change their mind on an investment idea – the portfolio holdings of other investors can be a great starting point for generating investment ideas.

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