Our Free Cash Flow Value investment process seeks to identify high-quality, undervalued stocks with superior financial strength, strong free cash flows and lower relative levels of debt that we believe will outperform over full market cycles

Philosophy

We believe investors can seek the higher returns associated with small- and mid-cap investing without sacrificing portfolio quality.

A high-quality company, in our opinion, exhibits superior financial health and a proven business model that generates strong free cash flows with a catalyst for price appreciation. Focusing on companies that can retire all outstanding debt within ten years based on expected free cash flow levels offers an added margin of safety for our clients. We also believe that a company’s value is equal to its discounted future cash flows. Earnings and earnings forecasts are important, but we see cash flows as the truest measure of a firm’s viability and operation.

Approach

  • Identify compelling valuation opportunities by applying a disciplined, repeatable process based on bottom-up, fundamental research
  • Buy financially healthy companies with proven business models
  • Look for strong catalysts for price appreciation
  • Take a long-term view
  • Avoid speculative situations and financial risk
  • Reduce/sell on high valuation
  • Sell on signs of financial strength deterioration

Process

Identify

Rigorous screening process identifies stocks exhibiting a combination of discounted valuation and financial strength

Output = Research focus list

Analyze

Intense fundamental research examines:

  • Current and historical operating results, including sales, earnings, operating and free cash flow, debt and debt coverage ratios
  • Balance sheet and off-balance sheet items
  • Business model, company management and industry trends

Result = Proprietary projections of future operating results and target valuations

Execute

Construct portfolio by implementing buy/sell decisions and applying strict risk controls

Goal = Actively managed strategy that seeks to capture consistent excess returns over the long term

One consistent process, three strategies

Objective:
Seeks long-term capital appreciation by investing in undervalued, small-capitalization companies trading on US markets.

Benchmark:
Russell 2000 Value

Inception date:
1/1/1993

Objective:
Seeks long-term capital appreciation by investing in undervalued, small- to mid-capitalization companies trading on US markets.

Benchmark:
Russell 2500 Value

Inception date:
11/1/2010

Objective:
Seeks long-term capital appreciation by investing in undervalued, mid-capitalization companies trading on US markets.

Benchmark:
Russell Mid Cap Value

Inception date:
2/1/2020