Cadence Capital's Karl Siegling (also a member of the investment committee at Under the Radar Report) says that he not only looks for companies that are profitable, but ones that are achieving earnings growth, but are cheaply priced.
This means the company might be forecast to make 20 per cent earnings growth a year over the next three years, but trade on a PE multiple of 10.
Because of the recent falls, many Aussie small caps are hitting this criteria. The problem is, another criteria is that his company buys when the shares are heading in an upward direction.
"If it's such a good company, why is it that the share price is falling?"
Right now, all companies, good and bad are getting hammered. The key, he says, is relativity:
"Our risk tolerance depends on variance."
Our next issue (out Thursday October 6) has the full interview with Karl - and how his fund has achieved its returns of more than 20 per cent a year over the past six or so years.