Portfolio Update: 1 New Addition + 1 Sale + 2 Reinforcements

1 addition in my small-cap portfolio

The performance of my small-cap portfolio has been satisfying this year. What is even more encouraging is that I maintain a strong conviction in my portfolio: it is well positioned to deliver a strong performance in the coming years. Indeed, most of my stocks maintain a reasonable valuation and deliver very strong results with positive outlooks.

The market may become more volatile or even consolidate. In the short-term, I would gladly welcome a strong consolidation to reinforce my positions. In the long-term, EPS growth (FCF growth) is the only thing that really matters.

The strategy behind my small-cap portfolio

The strategy of my 2 portfolios is different. My large-cap portfolio is dedicated to long-term compounders, world leaders, with dynamic growth and decent valuation. My small-cap portfolio aims to have a better performance of the my large-cap portfolio by investing in very promising businesses, with strong business models and with an appealing valuation.

To get this result, the stock selection and the analysis of their business models and markets are my main focus. It is always a possibility to be completely wrong this is why I have a specific cash management approach:

• When I first buy a stock, I begin with a small position

• I reinforce if the earnings and outlooks are positive, validating my investment thesis. I try to optimize my reinforcements by buying close to supports

• This creates a concentrated portfolio with strong conviction stocks and a long tail (around 1/3 of the portfolio) of potential winners waiting to deliver

A concentrated portfolio with a long-tail of potential future winners

I just added a new stock in my small-cap portfolio. This is a US small-cap company operating in a niche market. I calculated that this stock should return 17% / year in the coming year - this is a calculation framework I described in this article.

Llet’s take a look at the metrics of my small-cap portfolio before and after this purchase (and 2 reinforcements):

• Past growth: 25.0% —> 27.2% / Estimated future growth: 19.7% —> 21.2%

• Estimated EPS growth: 27.8% —> 28.5%

• Net profit margin: 21.5% —> 20.4%

• ROE: 34.7% —> 33.2% / ROIC: 25.3% —> 24.0%

• Debt leverage: -0.57x —> -0.54x EBITDA (so average net cash position)

• PE: 29.0x —> 31.0x / PE Y+2: 20.2x —> 21.2x

• FCF yield: 4.8% —> 4.6% / FCF yield Y+2: 8.7% —> 8.3%

• Dividend yield: 1.52% —> 1.42%

• Dilution: -0.15% —> -0.24%

• Expected TSR: 18.4% —> 18.5%

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The new stock