MAPFRE AM US Forgotten Value: finding jewels in overlooked stocks

The investment philosophy known as value investing was first developed in the 1930s by Benjamin Graham and David Dodd. This strategy consists of analyzing a range of companies, in an effort to find those with high quality that are being undervalued by the markets. In other words, these are stocks that are trading at prices below their intrinsic or real value.

The objective of this philosophy, which was popularized by Warren Buffett, is to maintain these holdings until their hidden value is recognized by the markets in the future. To accomplish this, a rigorous analysis is performed on each company, to understand its business situation and determine its actual value.

There are various products on the market that follow this philosophy. One of the Spanish mutual funds that is applying this strategy is Mapfre AM US Forgotten Value. This fund was created through an alliance between the Spanish asset management firm MAPFRE AM and a boutique American firm, Boyar Asset Management. This fund is an investment vehicle that tries to find jewels in the form of overlooked securities.

This is a U.S. equities fund that puts its investment focus on companies that are undervalued in the market. “This fund is known for its disciplined approach, with intensive research performed to identify undervalued and overlooked stocks. The company is taking advantage of Boyar’s own research process, which it has been perfecting for almost 50 years, to find value in companies that are sometimes overlooked by Wall Street”, explains Jonathan Boyar, the fund’s advisor and manager at the Boyar Value Group.

Boyar’s research process consists of performing an in-depth analysis of each potential investee company. “The fund’s approach to discovering value is based on a venture capital mentality, with each stock analyzed as if we were thinking about purchasing the entire company. The objective is to find companies that are trading at prices far below our estimate of their intrinsic value. This requires us to take a close look at each company’s fundamentals, breaking down its balance sheets and revaluing hidden assets, such as real property or valuable brands, that may have been undervalued by traditional accounting practices”, he says.

When analyzing a company, the team also has to understand that company’s management team, as well as the industry in which it operates, all as a way of predicting potential risks. “One of the fundamental aspects of the fund’s strategy is the focus that is put on identifying specific catalysts that could release value for our investee companies, such as spin-offs, changes to management, and share buybacks. Paying attention to these catalysts helps the fund avoid value traps”, he adds.

This investment vehicle’s objective is to achieve returns that are higher than the long-term market return. So far in 2024, the fund has obtained a revaluation of more than 9%. The company that has made the largest contribution to this result has been Uber. “The company in the fund’s portfolio that has shown the strongest performance is Uber, which has benefited from high levels of demand after the pandemic, and from a strategic focus on profitability. The next companies that have contributed the most to the fund’s returns are Interactive Brokers and Corning”, Mr. Boyar points out.

In fact, according to August 31st data released by Morningstar, Uber is the company with the most weight in the mutual fund’s portfolio. “The fund initially invested in Uber a few years ago, because we believed that the company was in the middle of a significant transformation, from a disruptive tech company that was burning cash, to a profitable leader and cash generator, including its ridesharing operations as well as its food delivery service. Since we made our initial investment, Uber has shown substantial progress, turning a $4.9 billion free cash flow deficit in 2019 into $3.4 billion in free cash flow in 2023. Our estimate is that the company will generate $5.8 billion this year”, he says.

On the other hand, some of the fund’s companies have not been performing as well in 2024, although the team has not lost faith in the potential of those stocks. “TopGolf Callaway Brands, CVS, and Warner Brothers Discovery have not been performing well for us. However, it is worth pointing out that TopGolf recently announced strategic alternatives, and we’re taking advantage of the opportunity to increase our position, since our view is that the company is significantly undervalued, with a short- and medium-term catalyst for revaluation of its capital”, he explains.

The fund’s team has also made a few changes to the portfolio in recent months, such as by adding Match Group. “We saw an opportunity to invest in a company that is dominating the online dating industry, while trading at a significant discount compared to our estimate of intrinsic value. This seems to be due to concerns about whether the number of users will continue to grow, and about the future of the online dating industry. Although we may be fighting headwinds over the short term, we think that Match’s solid portfolio is giving the company a good position in terms of long-term value creation”, he adds.

The team has also added SS&C Technologies to the fund’s portfolio, which is a company that sells software as a service to the financial services industry. “We were attracted by its solid competitive position in the financial services field. SS&C has a recurring revenue base, high margins, and a solid free cash flow profile, all of which are providing stability, while its track record of strategic mergers and acquisitions has allowed it to expand its product offer and enhance profitability. We now believe that there is significant potential for its share price to rise above its current levels”, he explains, because its stock is trading far below its historic multiples, and the company’s management is actively buying back shares.