Disciplined approach finds mispriced opportunities in U.S. equities

A disciplined, repeatable process is key to navigating volatile markets, says Sandy Sanders, senior portfolio manager and senior managing director at CIBC Global Asset Management.

“We look for companies that have a sustainable competitive advantage,” he said in a June 4 interview. “We want to go through a detailed fundamental assessment, which we call our seven-step process, and then we want to buy at the right price, and that’s 70 cents on the dollar.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Global Asset Management.

He described the seven steps to selecting a company to invest in:

• Ensure it has a competitive advantage — or a moat. Analysts look for high barriers to entry, high switching costs, power of buyers, power of suppliers and competitive intensity.
• Determine its main competitors and growth drivers.
• Forecast five years forward with a focus on whether revenue will grow over time.
• Analyze the company’s financial statements, including the balance sheet, cash flows and leverage.
• Review the management team, including the CEO and CFO, and assess their track record for allocating capital. “We want to understand how have they done in the past? And that really goes back to that return on invested capital history, making sure they do a great job,” Sanders said. His team uses HOLT, a database owned by UBS tracking more than 30 years of adjusted returns on invested capital.
• Model best, base, bear and worst-case scenarios. This is the core of his process, he said, with each scenario built on a five-year cash flow model using a 10% discount rate and 3% terminal growth. The base case defines fair value, or 100 cents on the dollar. If a stock is worth $100 and trades at $70, it’s at the target price for acquisition.
• Consider ESG implications.

Sanders said the entire seven-step process takes about a month, after which the team reviews the company together, allowing room for constructive debate.

“Once we’ve done the follow-up work on the company, it goes into our active inventory, where we basically wait for the right price to pay,” he said. “That’s the only thing that we can control as an equity investor. You pay the right price.”

By combining rigorous fundamental analysis with a focus on valuation, Sanders identifies high-quality U.S. companies trading at meaningful discounts. As an all-cap core investor, he buys growth and value stocks across large, mid and small caps, allowing flexibility amid volatility.

Growth stocks have performed strongly over the last decade, Sanders said, with AI-driven segments including semiconductors, hardware and data centre supply chains seeing particularly strong gains.

On the value side, Sanders favours financials, supported by a rebound in capital markets and strong demand for recent IPOs like SpaceX, Anthropic and OpenAI.

“There’s a tremendous amount of other activity going on in the marketplace,” he said. “And that’s going to benefit capital markets companies, which are value ideas like Goldman Sachs and Morgan Stanley.”

In alternatives, Sanders said firms like KKR are well positioned as private assets are brought public at higher valuations.

The most underpriced opportunity right now is home builders, he said. The segment is cyclically depressed but showing signs of recovery. Sanders likes Lennar, the second-largest home builder in the U.S., which builds 80,000 homes each year and has a strong balance sheet.

“This is potentially a nice opportunity to buy at the cycle low and get a really great entry price here,” he said. “So we do think that is an area where we see some pricing opportunities.”

This article is part of the Advisor To Go program, sponsored by CIBC Global Asset Management. The article was written without input from the sponsor. Sandy Sanders is a senior portfolio manager with CIBC Private Wealth Advisers, Inc., providing portfolio management responsibilities for the Renaissance U.S. Equity Fund.