Deep Value In Japan Returns 105% In Ten MonthsRupert Hargreaves
Warren Buffett has said that even today, he could earn 50% or more a year if he had less money.
As strange as it may seem, having more than $80 billion to his name is actually a disadvantage to Buffett. With so much cash, he has to take big bets on large companies, and just can’t access the market’s best small-cap opportunities.
Warren Buffett wouldn’t be where he is today without small caps. The Oracle of Omaha made a fortune investing in small-cap stocks during the early years of career, achieving an annual return of more than 20% while doing so.
However, with around $80 billion to his name today, Buffett has outgrown small caps. Luckily, there are plenty of other highly experienced investors out there who are still able to hunt for small-cap value.
To find these managers and their ideas, ValueWalk set up the Hidden Value Stocks newsletter.
Hidden Value Stocks is a quarterly publication which profiles two hedge funds in each issue. So far, ideas profiled have produced a total return for investors of over 50% (compared to the Russell 2000 value benchmark return of 40% over the same period) with an average return of 25%.
One of the funds we profiled a few months ago was Verdad Capital. The value-focused firm picked Yamaya Corporation (9994) as one of its focus stocks for the magazine.
At the time of publication, the stock was trading at ¥1,620 (June 15, 2017) and today it is trading at ¥3,295 for a total gain of 105% in just ten months.
Here’s what Verdad had to say at the time of the interview:
“At some point soon we expect them the rationalize the assets and close stores that aren’t additive to margins. At 3.5x EBITDA and free cash flow yields around 15% it’s really a dirt cheap story…101 publicly listed Japanese restaurants firms trade at an average EBITDA multiple of 9.6x. That’s expensive for Japan. Retail generally trades a couple turns lower. Either way, at 3.5x there is upside in the long term if they can shake the pessimism. It’s not inconceivable that they could trade up 2-3 turns in the next two years if they avoid calamity.”
Yamaya is just one of the 29 stocks Hidden Value Stocks has profiled since it launched at the beginning of last year. On average these ideas have returned 25% over a one-year holding period– this is not a backtest; these are real ideas owned by actual funds.
Each newsletter subscriber not only receives a detailed investment thesis on each idea, but we also provide direct access to the funds profiled as well as their quarterly updates.
The next issue will be published at the end of this week so to sign up today to make sure you don’t miss the next four ideas.