Three Great Ideas from the Ron Baron Annual Conference

Legendary mutual fund manager Ron Baron offers great long-term value and growth plays.
For as long as I can remember, I have been reading Ron Baron’s quarterly updates for his mutual funds. I became a fan because Ron Baron, CEO of the investment management firm Baron Capital, always concisely explained why he purchased a given stock. His methodology was always apparent, and he taught me that you should be able to summarize in a couple of sentences why you buy a stock.
He also is big on buy-and-hold, looking for stocks that could double within five years and often holding them for much longer than that.
Baron holds an annual conference in New York, and invites CEOs of some of his favorite holdings to make investor presentations. Let’s take a look and see if we find the same value Baron does in these selections.
Brookdale Senior Living (NYSE: BKD) is the largest operator of senior living centers in the country. I vividly recall Baron first writing about Sunrise Senior Living prior to its buyout many years ago. He described senior living companies as “sunrise industries,” those that are closer to the start of a long-term growth cycle than the end.
I confess, however, that I’m a bit puzzled by this choice.
The company lost money last year and is losing money so far this year. It has trailed the S&P 500 in terms of overall return since it went public nine years ago – 28% to the S&P’s 60%. However, the company merged with Emeritus recently, another huge provider of senior facilities.
Baron is an expert in this field and I take his picks seriously. I suspect the Emeritus merger is going to allow for a lot of cost cuts, and higher margins as the combined entity holds considerable market share.
As a buy-and-hold investor with patience, I can see BKD doubling in five years if the merger proves as synergistic as Baron suggests.
The Middleby Corporation (NASDAQ: MIDD) has been on my radar for a long time, and I foolishly never pulled the trigger. Middleby is the king of both commercial and residential food and kitchen equipment, all the more so since it purchased high-end retailer Viking recently, along with four other companies, including the famous U-Line.
I can see why Baron owns this blockbuster. Management has been relentless about pushing forward, having a vision of being the preeminent player in the kitchen equipment business.
They spend virtually nothing on capex, so they consistently generate free cash flow to plow back into the business. EPS is slated to grow at 25% annually, and trades at 23x next year’s earnings. I love this company and the stock.
CaesarStone Sdot-Yam, Ltd. (NASDAQ: CSTE) is exactly the reason you should own shares in funds like Baron’s, because I doubt you’d find a company like this otherwise. This Israeli company makes engineered quartz surfaces, used for all kinds of decorative and practical surfaces. Quartz is favored by folks in these fields for its beauty as well as its durability. It doesn’t chip or stain and doesn’t require maintenance.
Quartz is currently more popular in Europe, but is rapidly becoming the go-to choice for what architects and interior designers call “material conversion.”
This is also a 25% EPS long-term growth vehicle, with $77 million of cash on hand, and almost no debt. EPS jumped 60% YOY on 30% revenue growth in the recent earnings report.
CaesarStone is exactly the kind of explosive growth stock that I trust people like Ron Baron to root out. It has a great brand name in the U.S., Australia, Canada, and Israel. It has caught a trend that is likely to last several years, i.e. a sunrise industry. I think this is an easy double within five years.