A bottom-up investor, Michael Orndorff uses quantitative screens to find companies that have accelerating rates of revenue and earnings growth.
"We are not absolute-growth-oriented managers, but improving-rates-of-growth managers," says Orndorff, co-manager of the $453-million CIBC U.S. Equityand vice-president at Kansas City, Mo.-based American Century Investments. "If revenues are moving from minus 10% to minus 2%, that's improving business fundamentals. It's not about absolute levels of growth, but the direction."
Orndorff, who works within a five-person team, reviews scores of companies and then concentrates on fundamental analysis. "We may see two companies with similar rates of growth, but for one it could be a function of a change in foreign currency. That's not very sustainable," he says.
The CIBC fund is modelled after the US$1.1-billion American Century All Cap Growth sold to U.S. investors. Orndorff has co-managed this fund since late 2008, along with David M. Hollond, senior vice-president and chief investment officer, small and mid-caps.
American Century is a prominent U.S. fund-management firm, with more than US$125 billion in assets under management. CIBC CM acquired a 41% stake in American Century in August 2011.
"Whereas a company with true organic drivers that are moving the business in the right direction -- for instance, as a result of a new product, or addressing new market, either in the U.S. or internationally -- that's much more interesting to us," says Orndorff. "We want to understand where the acceleration is coming from, and the sustainability of that acceleration."
Running a portfolio of about 100 names, Orndorff limits single holdings to about 4%. His portfolio turnover was a fairly modest 32% in the first six months of the year.
One representative name is Priceline.com Inc. PCLN, the online travel company that runs reservation websites such as Booking.com. Orndorff took a position after the company reported successive increases in revenues.
"Since 2006, they've been able to replicate what they've done in the U.S., first in Europe and now Asia and Latin American. The company has gone through waves of acceleration," says Orndorff, noting that Priceline's global market share has grown to about 45% as of mid-2013.
"This is a stock where the valuation has gone up, but the growth rate has run ahead of the valuation," says Orndorff. "The valuation is not all that extreme relative to the growth rate and the continued opportunities in front of them."
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A native of St. Charles, Mo., Orndorff is an industry veteran of almost three decades. He began his financial career as an accountant, after graduating in 1985 from the University of Central Missouri with a bachelor of business administration. He earned his certified-public-accountant designation while working for Price Waterhouse for four years.
"I wanted a school with a good accounting program, and actually enjoyed it," recalls Orndorff. "The only diversion is that I joined the investment-management club in my last year in school, as part of a securities-analysis class. Part of our experience was to go to Chicago, visit some companies and go to the Chicago Board of Trade. That's where the investment bug bit me."
Orndorff landed a job as an accountant at Franklin Savings, one of the largest savings and loans associations at the time. But in the last couple of years of a four-year stay, he made a transition to the investment-management side and worked as a fixed-income analyst.
In 1994, Orndorff joined American Century, initially managing an international equity team that looked after the stock-screening process. "It was much harder back then. Today, you can easily buy relatively clean accounting data." In 1998, Orndorff joined the mid-cap equity team. A decade later, he completed an MBA at Boston University, studying on a part-time basis.
The strategy implemented within the U.S.-based fund was introduced in October 2008. The team became sub-advisors to the CIBC fund in February 2012. Last January, the firm assumed responsibility for the $22-million Renaissance U.S. Equity Growth, which now closely resembles the CIBC fund.
As a growth manager, Orndorff acknowledges that value investing has been more in favour. "Our style is looking for companies with improving fundamentals that are sustainable. That attracts us to names with longer-term secular-growth drivers," says Orndorff. "And in the last quarter they have come back into favour."
Indeed, he's counting on recently added holdings such as Zoetis Inc. ZTS, an animal medicine and vaccine company serving the livestock and pet markets, which was recently spun out of Pfizer Inc. PE. "The real interest is the improvement on the margin side," says Orndorff. He adds that that the firm is positioned to boost operating margins from about 25% to 30%, through measures such as improving the manufacturing and supply chain.
"Consumers are more willing to spend on pets. And as income grows, there is a greater demand for protein. Zoetis is not a fast grower -- more in the 4% to 6% range," says Orndorff. "But that's okay because we will own some slower-growth companies. We look for other ways to drive the improving fundamentals."
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