Baseball gives a man the All-Star break for a reason. The schedule stops for a moment, the standings sit still long enough to read them, and every general manager in the game is forced to ask the same question:
“Is the roster built the way I think it is built, or have I been fooling myself for three months?”
The Small-Cap Deep Value Portfolio gets the same treatment today. 15 names, purchased on the same discipline that has separated this newsletter from the parade of momentum chasers and story stocks for three decades, and it is time to open the book and look honestly at the results.
The Standings
11 of the 15 positions are ahead of their purchase price. Four are behind. The average gain across the portfolio stands at 15.5%, and the median sits at 14.4%, which tells you the gains are not the product of one or two names carrying the rest of the roster on their backs. This is a lineup, not a single slugger.
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The valuation pillar remains the foundation, and the numbers still look like a Graham disciple wrote the shopping list. Average price to tangible book across the portfolio comes in at 1.14 times, and the average EV to EBIT sits at a startling 4.8 times.
Wall Street will tell you cheap stocks are cheap for a reason. Wall Street said the same thing about community bank stocks in 2011, and anyone who listened missed one of the great buying windows of the last generation. The reason these 15 names trade where they trade has far more to do with size, neglect, and analyst indifference than with any defect in the underlying businesses.
Quality, measured by the average Piotroski F-Score of 5.4, is respectable without being remarkable, and that is precisely what a value portfolio in the accumulation phase ought to look like. The average Altman Z-Score of 3.09 puts the portfolio, in aggregate, safely inside the zone Altman himself defined as low bankruptcy risk.
One name pulls that average down hard enough to deserve its own paragraph, and it gets one below.
The Winners
This is the part that matters.
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