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A look at Bob Auer from the Auer Growth Fund

Last night I listened to an interview from microcapclub.com, with a man named Bob Auer. Bob is a portfolio manager for a fund he started back in 2008. He managed to make millions of dollars off a philosophy he discovered with his father, they search for three things:

  1. Stocks with quarter over quarter sales growth above 25 percent
  2. Stocks with year over year sales growth above 25 percent
  3. Stocks with a PE Ratio under 12

In the interview, Bob describes the philosophy as, "we are buying the Apple and Google type growth stocks, but only paying a reasonable valuation." He said over a 21 year period following that criteria they found over 800 stocks that doubled. The sell discipline of the portfolio is if they quit having a 25 percent quarter over quarter growth or the stocks doubles they sell.

After finding a stock that meets the criteria, he tries to avoid the stock if:

  • the tangible book value is negative (equity minus tangibles).
  • it is heavily shorted.
  • the current ratio is below 1.

They have a seven tier weighting system and no stock starts off above a 5 in weighting. I love his philosophy, he says, "when you invest in companies showing 25 percent growth and a PE below 12 good things are going to happen."

Over the podcast he suggests a few stocks, none of which seem to meet the full criteria mentioned above:

Elecsys Corp

Out of Kansas, they provide machine to machine (M2M) communication technology solutions, data acquisition systems, management systems, and custom electronic equipment for critical industrial applications worldwide. The price has had a long uptrend over the year, increasing over 100% from January. I like this stock, but I would probably wait to get in, it's on a bit of a dip right now and I am going to try to catch it around $7.00; operative word is try.

Hudson Technologies, Inc.

This company appears to be in the business of refrigerant services, providing solutions to recurring problems within the refrigeration industry. Their growth seems quite strong, with annualized sales  growth over the last 4 years of 32.6%, however they are struggling recently with declining quarter over quarter growth in Q2 but increasing to 5.0% on the earnings they released today.  I like the company, but I don't love it. The PE Ratio is cheap (under 5), but who knows where revenue is going to sit moving forward.

From their fund website, a couple of their largest holdings include:

Spirit Airlines

This is a discount US airlines. I would never fly Spirit, because they are the kind of airline that charges you for having carry-ons, which kind of ironic because the ticker symbol is SAVE (in the Alanis Morisette sense of the word ironic). That being said, the growth is outstanding; they have average annualized growth of 23.4% over the last 4 years and recent quarter over quarter growth of 19 percent. With a PE ratio of 25.30, they are trading at much higher price to earnings multiple than other airlines; this is because they are showing wicked growth combined with no debt. I love this stock, and think it might be worth buying now. I will give it a further look before giving it an official buy recommendation.

Atwood Oceanics, Inc.

They are engaged in international offshore drilling and a contractor  in the drilling and completion of exploratory and developmental oil and gas wells. These guys have average annualized sales growth of 10.3% over the last 4 years, with the quarter over quarter growth of 53%. A PE ratio of 10.26, which is actually pretty cheap considering the level of growth. I think this a reasonably smart buy.  But I will need to examine it again in the future.

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