In the classic Graham & Dodd tradition, we believe "deep value" stocks exhibit superior risk-reward. Asset values, cash on the balance sheet, high dividend yields, extraordinary low valuation all help to cushion a stock's downside risk. Many of our stocks exhibit high growth, one should not automatically assume deep value stocks are low growth or stodgy old companies. Quite the contrary, it is possible to find high growth companies with deep value characteristics if one does their homework carefully. Typically 2/3rd's of our ideas have been in growth industries, and 50% have been clear industry leaders. Many of our ideas have the potential to become multi-baggers and are stocks we recommend for several years. Additionally, all our stocks have multiple catalysts that are likely to unfold over the next 6-12 months to unlock value. We believe traditional bulge-bracket Wall Street firms virtually ignore this segment of the market place and, in fact, we often find our best ideas among stocks where there is no research coverage or the Street is bearish on. We do detailed IS/BS/CF statements and DCF's on all our recommendations. All stocks are screened for minimum daily liquidity thresholds, and we focus on stocks across the capitalization spectrum: Small, Mid and Large-cap.
We define Deep Value as:
• Companies with rock solid balance sheets: high Net Cash, high Net-Net ratios (current assets – all liabilities to equity market cap), surplus real estate, land, stakes in other listed companies, hard assets, etc. as a significant percentage of equity market cap.
• High Dividend Yields: Indicates strong Free Cash Flow and proactive management.
• Low valuation multiples, such as low single digit Price/Earnings, Price/Book and EV/EBITDA multiples.
• Strong Free Cash Flow, and low Price/Cash Flow multiples.
• Corporate actions to unlock value, such as Buybacks, Spin-offs, Listing a subsidiary/business, etc.
• Significant discounts to comparable companies, or the overall equity market.
• Stocks trading at discounts to intrinsic value and takeover or private market valuation.