Mid- and small-cap companies with innovation, acquisitions and geographic expansion at the core of their strategy are expected to see growth, as well as business with strong competitive advantage positions, says Paul Hogan, CFA, the Co-Manager of the FAM Equity-Income Fund at Fenimore Asset Management, Inc.
“Another indicator of competitive strength is the return on invested capital that a business is able to earn. Stronger companies earn significantly higher returns than weaker ones. We want them to be highly profitable so they can pay an ample dividend and grow that dividend over time,” he said.
Hogan likes Mattel (MAT), the toy maker, because of its strong brands, such as Barbie, American Girl and recently acquired Thomas the Tank Engine brand. He also points to the company’s 3.8% dividend yield and its global appeal as strengths. Hogan sees Mattel as well managed and having the potential for significant growth.
“Interestingly, when you think about the ‘graying of America,’ and then carry that onto the younger generation, it means that there are more grandparents. With more grandparents, that’s more people to buy toys for the grandchildren and Mattel should benefit,” he said.
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