At Robotti & Company we are research focused. We are not driven by fads or trends. As long-term value investors we look for situations where the market price of a security is well below its intrinsic value. Our bottom-up research process focuses on industries with high barriers to entry, companies whose management teams have shown a disciplined approach to capital allocation, entities whose balance sheets are strong enough to survive downturns. Our research team looks to find stocks which have fallen out of favor but which have the potential of realizing significant appreciation while still providing a “margin of safety.”
Some of the categories that provide us with interesting opportunities include:
- Special Situations – Liquidations, spin-offs, bankruptcies, preferred issues and rights offerings are areas of particular interest to our firm as they often present excellent risk-reward opportunities. They may be less attractive to other investors for reasons unrelated to the company’s intrinsic value. Since they are generally not followed by conventional Wall Street research firms, they present opportunities for value-oriented investors who are willing to look off the beaten track.
- “Fallen Angels” & “Orphans” – “Fallen Angels” are companies that once were the darlings of Wall Street but have disappointed investors enough to cause an irrational decline in their stock price. If the fundamentals of the business are sound and the balance sheet strong, the shares may represent an exceptional value. “Orphans” are companies that have rapidly lost value after an initial public offering. Because of their short and disappointing history and lack of strong investor sponsorship, contrarian investors can often find value here.
- “Net-Net Working Capital” – The minimum liquidation value of a corporation is its “net-net” working capital. This value is determined by subtracting from current assets all liabilities ranking senior to the common stock. On occasion the market will value companies below this level and the buyer is able to acquire the company’s fixed assets at no cost, while paying nothing for the business as a going concern.
What Robotti & Company Research Does Not Cover
We do not typically look at technology companies or pharmaceutical entities. Both require a specific knowledge base. Also, we believe these companies are widely monitored by Wall Street and therefore unlikely to provide significantly undervalued opportunities.