Deep value investing is often misperceived as the purchase of small, illiquid, low growth companies with poor returns and incapable management. While these companies may appear attractive on many valuation metrics, most investors are wary of value traps with no catalyst for near-tern share price appreciation. This commonly held view provides an opportunity for our clients.

Value Investment Principals (VIP) is focused on the identification of growing companies with clean balance sheets that provide investors with the benefit of a deeply depressed valuation. Recommendations will often have net cash positions representing a significant part (50% to 130%) of market capitalization, with price-to-book ratios less than 1.0x. Importantly, these companies have positive free cash flow and have maintained profitability throughout recent recessions. Several recommended companies have returns on equity of roughly 25% and margins approaching 35%.

In order to avoid the value traps that can befall investors in this space, each recommendation identifies a specific catalyst for share price appreciation. Many recommended companies have secure dividend yields in excess of 10%, generating steady and reliable income to investors.

Companies recommended by VIP have been dismissed by Wall Street and therefore have minimal or no analyst coverage. If coverage exists, it will often have a negative view of the company when VIP turns positive. By focusing on the entire globe, rather than a specific region, VIP is able to identify the most liquid and inefficiently priced companies regardless of location.

The service provides comprehensive initiation reports on one to two deep value companies each month. Updates are routinely provided on current recommendations, and contact with the analyst is welcomed and encouraged.
 

About the Author

The Principal and CIO of Value Investment Principals is Sandy Mehta, who has over 20 years buy-side investment experience at firms such as Putnam, Ariel Capital, and Wellington. Sandy has an MBA from Wharton, a Master of International Management from the American Graduate School of International Management, and a Bachelor of Commerce from Sydenham College. VIP currently has offices in Hong Kong, Boston, and India.