A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
Oberweis Fund: Finding Up-and-Coming Stocks
08/29/2016 10:00 am EST
Jim Oberweis Jr. manages 5 leading highly focused funds – covering micro and small caps as well as emerging markets and international growth stocks. Here, he discusses the Oberweis Funds and some of his favorite stock ideas in each of their portfolios.
Steve Halpern: Our very special guest today is Jim Oberweis, Jr., manager of the industry leading Oberweis Family of Funds. How are you doing today Jim?
Jim Oberweis, Jr.: Great, pleasure to be on today Steve.
Steve Halpern: Well, thank you for taking the time. Now your investment processes focuses on uncovering up and coming stocks that are poised for a rise in profits and growth. Could you share an overview of the investment strategy, and touch on why this works best in the small and mid-cap space.
Jim Oberweis, Jr.: Yes, I sure will. There's really I think two ways you can make money in investing in growth stocks.
One is to find companies with truly innovated products and services that are really differentiated in the competitors in allowing them to create new markets where none existed or take significant markets from the incumbents.
The other way is to find companies where expectations are actually quite modest for growth, but growth is likely to come in well ahead of those expectations. It's either a matter of finding great companies or companies that are just better than what people think.
It's a lot easier to find those types of companies in pools where you don't have as much competition. That's why we tend to focus mostly on smaller company size stocks, as well as, international stocks because there's just not as many institutional investors looking in those pools.
Steve Halpern: Then you are putting these strategies to work in a variety of funds, including the Oberweis Micro-Cap Fund (OBMCX), and the Oberweis Small-Cap Opportunities Fund (OBSOX). Could you talk about these two portfolios?
Jim Oberweis, Jr.: I sure will. Those are two domestic funds where we're primarily looking for US companies that are falling below the radar screen of the main institutional community. Especially this year, we're seeing a lot of success coming out of our Micro-Cap strategy.
I think part of that is just stemming from the depressed valuations that micro-cap stocks had coming out of the financial crisis. In the micro-cap world we tend to find a variety of companies, some that have really new technologies, and some that are just not very well known.
Let me give you an example of a couple of each. These are all three domestic companies.
For example on the higher end innovative side there's Gigamon (GIMO) which is Santa Clara California developer of network visibility and control solutions. They basically make software that overlays firewall software to filter out traffic, and basically speed up tools like those from Palo Alto Networks (PANW).
Another one on the more innovated side would be CEVA (CEVA) which licenses DSP cores to the semiconductor industry. They're based in Mountain View, California. They grew 45% in the latest quarter on 90% gross margins, and trade for 40 times 2016 earnings estimate.
Then one kind of boring company that I think is positioned to beat expectations is Cooper-Standard Holdings (CPS). That's an auto supplier based in Novi, Michigan. They sell body-fueling systems. This company actually went bankrupt in 2009 after the financial crisis.
They emerged out, and brought in a new CEO from Johnson Controls (JCI) who has cut costs, moved manufacturing from Western Europe to Eastern Europe, and North America to Mexico, and is driving significant profit margin expansion that I think is going to go well beyond what the Street currently expects.
That gives you a feel for the types of companies we look at in our domestic funds.
Steve Halpern: Now turning to the global space, your offer a trio of top-performing funds -- the Oberweis Emerging Growth Fund (OBEGX), the Oberweis International Opportunities Fund (OBIOX), and then the more specialized Oberweis China Opportunities Fund (OBCHX). Could you share some insights into these various portfolios?
Jim Oberweis, Jr.: The International Fund basically does a very similar thing to what we're doing in the US, but we're pulling from everywhere except for the US. It's a very wide variety.
We've got stocks in a dozen different countries, and we're kind of just casting a net for companies that are kind of at that inflection point of change.
China is very specific in that we're only looking in the Chinese market, but there's just massively misvalued stocks in China. It's probably the single most undervalued geography on the planet right now.
And then our Emerging Growth Fund seeks to put together all of our best ideas across all of our strategies in one single fund all over the world.
Steve Halpern: Would you be kind enough to highlight a few of the international stocks that meet the criteria for these portfolios?
Jim Oberweis, Jr.: Absolutely so a recent IPO, China Online Education (COE) that trades in the US is a company that provides English tutoring at a very reasonable price point to Chinese nationals.
They do it by hiring employees from call centers in the Philippines who are sick of working night hours serving US customers, and they tutor via online technology with kids in China on how to speak English. It's all at a very reasonable price point relative to the competition.
Another name that we love in China is good old fashion Ctrip.com (CTRP), which is kind of the “Expedia of China”, but C-trip really dominates the market share in China.
They've either acquired or gotten rid of their competition, and they have a market share in what I think will evolve to be a much bigger market than the US with a much stronger market position. We like China Online Education, and we like Ctrip.
I'll mention just a couple others from my international fund. Very quickly, we like a Swedish company that makes online gaming solutions that they sell to casino operators called Evolution Gaming Group AB – which trades on the ticker EVO.SS in the Swedish exchange.
A biotech company – Genmab -- trades under the ticket GEN.DC on the Copenhagen exchange. So very quickly, that’s just some of the names that we like right now.
Steve Halpern: Finally, I hate to be the “bearer of bad news” for our listeners, but you recently decided to stop The Oberweis Report newsletter after 40 years, and your letters always has been best known for its long term insights into investor psychology and market strategy. Could you leave us with a brief overview of what you think about the current overall state of the market from an investor psychology standpoint.
Jim Oberweis, Jr.: We think that expectations perhaps are not discounting some of the risk that could lie ahead in the years to come. There's a number of things on the forefront. What happens with BREXIT? What happens if Donald Trump wins the presidency?
Those things are not likely to be huge problems. But sometimes something like unanticipated interested rates— that everybody's been anticipating already — for three years. Some of those things can cause unforeseen sequences of events that concern us, and they're not being discounted right now in the market place.
So those are things I think that make it difficult to just invest in a broader market, and expect above average returns.
We think this is going to be a stock pickers market where you have to look at individual stocks, companies like those that we mentioned today that I think are positioned to earn returns much better than the market overall.
Steve Halpern: Again our guest is Jim Oberweis Jr. of the Oberweis Funds, and we look forward to continuing to talk to you in the future about your outlook on the markets. Thank you for your time.
Jim Oberweis, Jr.: Thanks so much Steve. Thanks a lot.
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