Investment Process

Search Criteria | Selection Criteria | Business Characteristics | Valuation Criteria

Search Criteria

Aqua Terra generates investment ideas from various sources, ranging from proprietary screens and models to traditional information mediums such as trade publications and journals, industry conferences and trade shows, institutional research coverage, and investor relations firms.

Our idea generation is grounded in basic value investing. We look for companies that have a positive long-term outlook and ones which we believe are undervalued by the marketplace. These companies may be under-researched by Wall Street or currently unknown to the average investor. A majority of the companies we follow are small- and mid-capitalization companies listed on numerous global exchanges, which tend to be ignored or orphaned by Wall Street, but which represent excellent investment opportunities. We also look for well-run companies with high or improving returns on capital, excess cash flow, healthy balance sheets and management that have a vested interest in the success of the company.

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Selection Criteria Investment Process

Define natural resource universe
Screen for under/overvalued issues - model for specific industry, e.g., water infrastructure
Rank stocks based on fundamentals (EPS, cash flow, ROE, etc.)
Rank companies in a relative-value format - begin screen for purchases
Perform additional analysis using financial statements, databases & research
Identify potential issues, positive & negative, of each individual company considered for the portfolio
Converse with industry contacts, analysts and company officers
Determine purchase price of security and allocation to portfolio
Monitor positions on a daily basis

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Business Characteristics

We tend to be selective with respect to the companies considered for investment. We specifically look for companies with the following business characteristics:

Proven business model
Predictability and consistency of revenues and cash flows
Strong franchise value or market niche
High or improving return on capital
Healthy or improving balance sheet
Excess free-cash flow
Quality management team

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Valuation Criteria

We dedicate significant resources in analyzing securities to determine their intrinsic or fair value. This often involves the development of detailed valuation models, which are updated continually to reflect new information. Three common metrics used in our analysis are:

Stock price relative to intrinsic value
Valuation relative to industry peers
Valuation relative to historic levels

Not every stock chosen for investment will meet all of these selection criteria. And companies meeting sufficient selection criteria are subjected to further intensive quantitative and qualitative analysis before we consider a purchase.

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