Finding Attractive Stocks for Our Opportunistic Value Strategy—Royce
article , video 12-06-2021

Finding Attractive Stocks for Our Opportunistic Value Strategy

PM Jim Stoeffel details how Royce’s Opportunistic Strategy identifies value stocks, the benefits of its new team, and where the team is finding attractive opportunities.


How does the strategy identify attractive value opportunities?

The strategy is based on a very disciplined approach to process and philosophy. There are four investment buckets: distressed assets, undervalued growth, turnarounds, and fractured growth stocks, oftentimes IPOs.

Investment Themes

  • Unrecognized Asset Values
  • Undervalued Growth
  • Turnarounds
  • Interrupted Earnings

The second aspect to it is, we look at price to sales and price-to-book, and it has to fit within those parameters, and then ultimately, there has to be a catalyst for growth. Who’s going to buy the stock from us significantly higher down the road? So we’re either looking for stocks that maybe screen cheap on a valuation perspective, whether it’s when we’re going to conferences or through our quant team or however we’re going to screen for those, and then decide whether there is actually a catalyst for growth. Or we may just read interesting research that says this is a catalyst for growth but maybe it doesn’t fit the valuation. And if you can hit the sweet spot of those two, then they can get in on the fun.

What are the advantages with the new management team?

Yes, so I’ve been in a team-managed environment just about all of my career. The beauty to it is the concept of peer review. Everyone has their biases, both good and bad, and if you’re running it by yourself, your biases can come through. Every stock that we have gets peer reviewed by the rest of the team. Anytime we have a stock that’s in trouble, it gets peer reviewed by the team, or every time we have a stock that maybe is at the top of the portfolio, it’s had a good run, it gets peer reviewed.

The one thing I like about this team is it’s a phenomenal team. Brendan and I have worked together for 25 years. We’ve worked with Jim Harvey for 10 or 11 years. We added a new assistant portfolio manager, Kavitha, who is incredibly talented. She’s been in the business for a very long time. She’s very personable, but she’s also not afraid to point out if she thinks we’re wrong, so she’s a good addition to the team.

One of the first things we’ve tasked her with is sort of going through what we call the Lucy stocks—the stocks that have continued to disappoint. You know, sometimes you’re just wrong and if we’re wrong, we want to get it out of the way. Sometimes you’re just early and you want to be patient, so she’s going to do that and give her honest opinion. So really great team, it’s going to work very well together and that’s what will make it work the best in my opinion.

And then we’re going to still have Buzz on as a senior advisor to make sure we’re staying within the parameters of the fund. But Buzz spent a lot of time with us. He clearly felt that we were acclimated and ready to go.

Which areas in the market are you finding the most opportunities?

Well, the obvious one because the stocks been bad performers are consumer retail. They have everything you want to hate in stocks right now: you have the resurgence of coronavirus, you have supply chain issues, so if they can’t get the product, it’s causing margin pressures. And then you have higher energy prices, which is obviously hurting some demand for retail. Now that’s exactly when you want to be buying things, when things are looking very bad and we think supply chain issues will get fixed, and you know energy’s probably here to stay. That’s probably a little bit of an incremental negative.

The other one I like that we don’t talk about quite so much is aerospace & defense. The aerospace industry had a double whammy with COVID obviously, but they also had the MAX 737 issues which created some hiccups in terms of production. Neither of those two issues have corrected themselves to the extent that we had hoped, but it looks like we’re close. They’re still a little bit on the sidelines, so that’s an interesting area for us as well.




Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the persons speaking as of November 2, 2021 and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.

The performance data and trends outlined in this presentation are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.

The Price-to-Book, or P/B, Ratio is calculated by dividing a company's share price by its book value per share.

Price to Sales is calculated by dividing the company’s market cap by the revenue in the most recent year.

Sector weightings are determined using the Global Industry Classification Standard ("GICS"). GICS was developed by, and is the exclusive property of, Standard & Poor's Financial Services LLC ("S&P") and MSCI Inc. ("MSCI"). GICS is the trademark of S&P and MSCI. "Global Industry Classification Standard (GICS)" and "GICS Direct" are service marks of S&P and MSCI.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.)



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