The Edge Encourages Investors to Look Outside Their Own Backyard for Value.

The Edge recognizes this is a difficult environment. That's a given, but how do you make money when everything isn't just going up with the market? Here are a few things to look out for.

• Look at Europe as an Untapped Source of Idea Generation

  Be open minded in your sources. There are some great Global names that will be profitable and outside your comfort zone. (see below for Rolls Royce).

• Don’t be Wrapped up in Media Hype About Value

  Ignore media attention to stocks. The chances are you will be the last in. Make it so that your source of ideas is original and unique where possible.

• Ensure You have Reliable Analyst Numbers to Work With

  Everyone needs reliable numbers by an experienced analyst. If you don’t have them, it’s easier and more fun to throw dollar bills over a high bridge into the river.

• Your Broker Wants to Sell You Stock

  If your broker is calling you every minute, ask yourself one question. Does he have your interests at heart or does his job depend on selling you stock?

Rolls Royce (RR) / £6.6 Billion ($10 Billion)

Rolls Royce (RR) is very interesting longer term play from Europe with multiple catalysts going forward and a play that was put to our partners for a longer term position. (Released previously to clients).

• UK Industrial Giant Down 40% Over the Last Year Creates a Long-Term Value Opportunity
• SOTP Story with Multiple Catalysts / Management Restructuring on Track
• Activist Investor Plays a Positive Role
• Entered Our ESS Model Portfolio (MP) with a 2.5% Weighting

The Edge View...

UK industrial giant, Rolls-Royce PLC, has been under the weather with five profit warnings last year. The stock is down ~40% over the last year. We at The Edge believe that the stock has its negatives priced in and is valued attractively from a medium term perspective.

• Negatives Already Priced in: We believe that the stock has been suffering for too long and that the negatives, such as challenging end markets, have already been identified and priced in;
• SOTP Story with Multiple Catalysts: Rolls-Royce is a multiple catalyst Special sits idea that has significant value from an SOTP angle. It has several assets that can either be spun off or sold creating multiple re rating opportunities for the Stub business (Aero, Defense & Nuclear Energy);
• Management Restructuring on Track: RR has been on a streamlining spree to reduce bureaucracy. Starting January 2016, RR has structured itself into five businesses, Civil Aerospace, Defense Aerospace, Marine, Nuclear and Power Systems, each led by a President reporting directly to the CEO. The new structure will help reduce costs and help in quick decision making;
• Activist Play a Positive Role: Activist Investor, ValueAct Capital, which is now the biggest shareholder in Rolls-Royce (10% stake) is keen on securing a board seat and playing an active role in the company’s transformation.