Analytical Framework - David Wendell Associates, Inc. Analytical Framework - David Wendell Associates, Inc.

Analytical Framework

Before recommending any security, we always consider basic investment needs. Does the client want growth now, and income later? Moderate but rising income? Or high income now? Another question must continually be asked: how well does a contemplated purchase or existing holding fit in with the investor’s long-term objective?

In our investment counseling, we emphasize seven different types of common stocks, each with investment characteristics that serve varying portfolio needs:

Top-Rated Growth: Outstanding companies which have fairly assured prospects of strong long-range earnings expansion and an internal reinvestment rate (retained earnings as a percent of equity capital) of 13% and upwards.

Seasoned Smaller Growth: Top-notch firms with similar characteristics to the first category but greater competitive risks due to their smaller size (less than $400 million in net income).

Superior Growth: Leading companies with the potential for above-average earnings growth and a reinvestment rate of around 10-12%.

Moderate Growth & Income: Steadily growing companies whose dividends offer an average or better yield and are normally raised each year.

Natural Resources: Producers of energy, timber and other resources with established reserves whose value should rise in an inflationary climate.

Large-Asset/Cyclical: Capital-intensive companies operating in basic industries which are strongly influenced by the business cycle.

High Current Income: Companies with modest growth prospects but stable trends and whose shares provide a high current dividend yield.

These classifications should not be viewed as precisely or permanently definitive. Each company’s characteristics have to be judged independently and may change over a long period of time. But this procedure has several important advantages:

  • It facilitates a comparison of ‘apples with apples’ in choosing which stocks to own out of a broad range of alternatives.
  • It relates each issue directly to the investment purpose for which it is held in a portfolio.
  • It gives a meaningful picture of the extent to which the investor’s holdings are structured to meet his or her particular needs and goals.
  • It encourages a continual examination of how well each company is measuring up in terms of fulfilling its expected long-range purpose.

Our stock selections are made on the basis of fundamental analysis and judgment combined with an in-depth valuation and investment review which our staff regularly compiles to identify the best values available at any given time.  Our management of fixed-income securities within client portfolios emphasizes quality, liquidity, tax considerations, diversification, maturity spreads and valuation factors.  Our aim is to take advantage of existing yields and/or to minimize the impact of future interest rate changes on the level of income.