Mr. Dhingra: High Pointe's investment strategy evaluates the intangible assets of companies and industries and incorporates that evaluation into our stock selection model. What differentiates our investment strategy from other investment approaches is that we believe we are the only firm to take a systematic and comprehensive approach to valuing intangible assets.
TWST: The selection of these intangibles, this applies to all of your products, regardless of capitalization of the companies?
Mr. Dhingra: Yes, that is correct.
TWST: Would you explain a bit more about what you consider to be companies that have these intangible assets?
Mr. Dhingra: Intangibles refer to assets that cannot be seen, felt or touched. They are non-physical assets such as patents, brand names, etc. For example, a company like QUALCOMM has more than 9,000 patents. Its products are used worldwide and its customers give it royalty for the use of these patents. Patents do not show up as inventory on the balance sheet, but nevertheless they are highly valuable and it is the best asset that QUALCOMM has.
Another example is a company such as Pepsi, which has 18 brands which generate sales of more than 1 billion each. One of the reasons Pepsi is able to generate revenue from these brands is that the name Pepsi and its snack brand Frito Lay are widely recognized in a large number of countries. This universal recognition is a result of billions of dollars of advertising over many decades. That advertising expense has been written off every year in which it was incurred. But the asset built on the advertising expense never shows up on the balance sheet of Pepsi, even though it is in our opinion the biggest asset that the company has. Those are two examples of intangible assets that are very significant, but they do not show up on the financial statements of companies.
Tickers included in this excerpt: AXP, FCN, MA, MO, PEP, PM, QCOM, TM, V
For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.