Round Hill
Asset
Management, Inc.
Registered Investment Advisor
Round Hill
Asset
Management, Inc.
Registered Investment Advisor
Round Hill Asset Management does not attempt to predict the direction of the stock market, interest rates or the general economy. Historically the stock market has periodically undervalued and overvalued companies in relation to their intrinsic worth. Round Hill's research focuses on determining the intrinsic value of individual securities.
Round Hill generally does not invest in new issues or stocks which are highly popular with the brokerage community. Most bargains are found among securities which are out of favor with the investment community, or which are not widely followed by brokerage firm analysts.
The investment attributes considered in any search for intrinsically undervalued common stocks are summarized below.
1) Business Value
A company's intrinsic business value is typically determined by comparing the enterprise in question with its industry peers. Recent merger and acquisition prices of companies in the same industry can be helpful indicators of how other knowledgeable buyers would value a similar business. Round Hill Asset Management also evaluates a company from the standpoint of a lender being asked to finance a hypothetical leveraged buy-out of the company, concentrating on cash flows and excess assets, instead of reported earnings and stated book values. When all other factors are equal, Round Hill favors businesses with consistently high returns on capital and high profit margins.
2) Hidden Assets
Corporate assets are often recorded on a company's balance sheet at historical cost, which may vary dramatically from the current market value of those assets. For example, an office building acquired decades ago has probably increased in value over the years. After depreciation, however, the actual value ascribed to that building on the balance sheet today will be less than the original purchase price. In order to determine a company's intrinsic worth, all such "hidden assets" are revalued at current market prices.
3) Net Net Working Capital
Bejamin Graham defined "Net Net Working Capital" as current assets (cash, receivables, and inventory) minus all liabilities, including both short and long term obligations. In certain cases, Net Net Working Capital may be viewed as the minimum liquidating value of a corporation's assets. When a company's stock market value is less than its Net Net Working Capital, the stock market is assigning no value to the company's fixed assets (plant and equipment). A buyer of such a stock purchases a share of the company's working capital for less than 100 cents on the dollar, and acquires a share of the company's fixed assets for nothing. Round Hill may monitor or invest in such an issue if the business in question has been consistently profitable and has suffered no fundamental negative changes.
4) Special Situations
While Round Hill's primary focus is on intrinsically undervalued common stocks. "special situations" may be pursued in certain circumstances. Special situations might include merger arbitrage, corporate liquidations, bankruptcy reorganizations and other forms of corporate reorganization.
5) Catalysts
Round Hill Asset Management attempts to identify any potential "catalysts" which could help lead to the realization of a company's intrinsic value in its stock price. A few examples of catalysts might include the following:
a) Implementation of an asset redeployment program by a company which could result in a higher return on assets and equity
b) Continuous repurchases by a company of its own common stock
c) Retirement of a principal stockholder-officer who has no heir apparent
d) A failed acquisition attempt which focuses the attention of shareholders and other potential acquirers on a company's intrinsic value
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