7 Stock Picks (Mostly) Under $10 Billion: Why They’re Best-of-Breed Bisons

D.A. Davidson, a rising investment bank with Montana roots, is out with the results of a new effort to identify the highest-quality stocks, called the Best-of-Breed Bison Initiative.

Logo aside, Davidson says it avoids a herd mentality in its stock-picking approach. In a report, it lists criteria like strong balance sheets and cash flows, handsome returns on equity, and enduring moats. There’s praise of Warren Buffett, and some light trash-talking of the competition: “To our knowledge, there are no broker-dealers today who have fully embraced an all-encompassing Best-of-Breed investment philosophy that underlies a search for the most durable, highest quality franchises.

Brunswick made a name in billiard tables and bowling pins in the 19th century but today makes boats like Boston Whaler and Sea Ray, plus motors and other components. Its market share has been rising, and stands at 14% in boats and nearly 50% in engines, which provide recurring revenue from parts and replacements. The stock goes for nine times earnings, and the price target implies 20% upside, yet Davidson rates it at Neutral, which seems at odds with the best-bison thing.

Trex is another Neutral rating and another relatively pricey stock, at 29 times earnings, with predicted upside of 19%. Trex turns sawdust and melted plastic grocery bags into pricey boards used to make decks that can last decades. I’m oversimplifying, but not by much. Not-quite-lumber has been gaining market share in decking since its introduction in the 1990s, and now makes up 24% of the market, with Trex its largest player. Profit margins and returns on invested capital are high.

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