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FAM Small Cap Portfolio Manager Talks Valuations

FAM Small Cap Portfolio Manager Talks Valuations

  • FAM Small Cap Fund Portfolio Manager, Andrew Boord, shares his thoughts on small-cap valuations.

    We definitely think small caps are on average trading at much lower valuations than large caps. We also regularly remind ourselves, and others, that historically small and large caps have taken turns leading the market, often for 10 to 15 years at a time, so eventually small caps will outperform large caps.  The big difference in valuations doesn’t mean relative performance will change tomorrow, but it does improve the odds of small caps outperforming large caps over the next 5 to 10 years. 

    That said, we at Fenimore focus 90% of our efforts on about 200 small businesses. We know very little about the other 1,800 lower quality small caps, and probably even less about macro topics, which is why we do not speak to the valuation of the Russell 2000, and instead focus on the valuation of our small cap investible universe. I would rather talk about the industries and businesses we intimately know—Russian fish, new floor offerings, risk of office loans, or the pricing of appliances because it impacts a new idea we’re evaluating—than employment trends. This is why it’s always a challenge to reconcile what we know or are hearing from our companies with the macro questions of the day.

  • Andrew Boord

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    Andrew Boord
    Portfolio Manager, FAM Small Cap Fund

Rather than comment about Russell 2000 valuations, we think about the valuations of the 27 companies we own stock in and the other 10 to 20 we might like to invest in eventually. When we think about our positions, valuations feel reasonable overall, maybe even low-ish, but it varies by company. Below is a quick summary of our 10 largest positions (as of 1/31/24), with particular focus on current valuations versus the prior 5 to 10 years.

  • CBIZ (CBZ) is trading at a higher-than-normal valuation. Our hope is that EPS growth stays high and they grow into it.
  • ExlSerivice Holdings (EXLS) valuation was on the high side of normal about a year ago but has declined considerably. Using FactSet data, the stock is about 19x forward P/E. Relative to the past 10 years, this is in the middle of the range.
  • Colliers International Group (CIGI) is very diverse by property type, service type, and geography. That said, soft U.S. office leasing and property sales brokerage is a headwind. So, the multiple is middle of the road versus history, while earnings are a little depressed (probably by 15 to 20%) by the lack of office transactions.
  • Pinnacle Financial Partners (PNFP) is trading around 1.7x tangible book. Clearly, investors fear bank stocks today. Outside of now and the COVID pandemic, the stock regularly traded around 2.5x tangible book.
  • Trisura Group (TRRSF) is only trading for about 11x earnings, which we view as cheap.
  • Chemed Corp. (CHE) is not particularly cheap, although it rarely is, at about 25x forward earnings. Over the past decade, the stock has regularly traded between 20x to30x. I would argue that EPS are a little depressed right now as the hospice business is still rebounding post-COVID, but even if true, the stock isn’t cheap.
  • Choice Hotels International (CHH): Investors are concerned that CHH may buy Wyndham, adding debt and integration risk. As a result, CHH is trading around 18x forward P/E, which is on the low side of normal versus history. 
  • Nomad Foods (NOMD) struggled with supply chain issues especially after Russia invaded Ukraine. Higher interest rates are a headwind too. They are starting to come out of this transition period, as you can see by the recent stock move. However, it still appears to be trading at 9x to 10x forward earnings.
  • Brookfield Infrastructure Corp. (BIPC) is a dividend stock, so I would argue the best way to value it is by dividend yield; our thesis is that long-term return will be the yield plus the growth rate of hopefully 5% to 9%. Yield-sensitive stocks sold off as interest rates rose. Today, BIPC yields about 4.4%. History is a bit limited, but in the past the stock usually yielded 3% to 3.7%. I would argue that the stock is cheap.
  • Landstar System (LSTR) is a truckload broker—a fabulous, yet volatile business. Demand goes through cycles tied to GDP growth, while supply goes through its own cycles tied to truck builds. In the past few quarters, they have been in a definite down cycle, which is the deceleration phase after the post-COVID boom. While the multiple may not look cheap, EPS are quite depressed. The stock should do quite well when the next upcycle inevitably occurs. 

I should add that during the past 13 months, in the FAM Small Cap Fund, we trimmed CBIZ slightly while adding to Colliers, Pinnacle, Trisura, Choice, Nomad, and Brookfield Infrastructure Corp. 

Fenimore was founded on and remains true to a value-oriented investment approach focused on individual companies. This value investing philosophy has been applied by the firm in all environments, regardless of market cycle stages, for the last 50 years.

This gives us confidence that applying our traditional focus on valuation to the small-cap equity universe is a worthwhile endeavor. Of course, the concept of “value” does not exist in a vacuum: some stocks are “cheap for a reason.” The quality profile of a company is integral to our assessment of overall valuation.

STAY CONNECTED
If you have any questions, please reach out to us. Call 800-721-5391, email us at info@fenimoreasset.com, or stop by either our Albany or Cobleskill location.

Thank you for your ongoing trust.

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Palmer Fargnoli Joins Fenimore as Regional Sales Director

Palmer Fargnoli Joins Fenimore as Regional Sales Director

Fenimore Asset Management, an independent, Capital Region-based investment advisory firm and manager of the FAM Funds family of mutual funds, hired Palmer Fargnoli as Regional Sales Director. In his role, Mr. Fargnoli meets with individuals, families, nonprofits, and institutions to impart Fenimore’s distinctive investment approach and solutions.

“Palmer has a history of fostering trust and developing long-term relationships, so he fits our culture very well,” said Fenimore CEO Anne Putnam. “He is committed to helping our investors achieve their financial goals and is dedicated to community service.”

Mr. Fargnoli’s extensive career includes more than 25 years of sales and fundraising experience for higher education institutions and nonprofits. He holds a BA from Union College and two MS degrees from Syracuse University.

Founded in 1974, Fenimore Asset Management is an independent, nationally recognized investment manager with more than $4.57 billion in assets under management (as of December 31, 2023) through its Cobleskill and Albany offices. The firm’s team focuses on in-depth research, investing in the stocks of carefully selected quality businesses, and providing its investors with highly personalized investment services. Fenimore offers both individually managed portfolios and a family of mutual funds (FAM Funds) that can be used for retirement and other long-term investment planning.

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John Fox, CIO, Joins Walter Thorne of the Albany Business Review for Albany Executive Insights

John Fox, CIO, Joins Walter Thorne of the Albany Business Review for Albany Executive Insights

John Fox, CIO, is honored to join Walter Thorne, Market President and Publisher of the Albany Business Review, for the Albany Executive Insights series, presented in partnership with the Albany Business Review.

Learn more as John walks through Fenimore’s investment approach:

  1. Quality Business
  2. Strong Financials
  3. Proven Management
  4. Margin of Safety
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Gary Dake Joins Fenimore’s Board

Gary Dake Joins Fenimore’s Board

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    Fenimore Asset Management, an independent, Capital Region-based investment advisory firm and manager of the FAM Funds family of mutual funds, announces that business leader Gary Dake has joined its board of directors.

    Mr. Dake is President of Stewart’s Shops Corporation. Stewart’s is a large, privately owned, and vertically integrated chain of convenience stores and gas stations with more than 355 shops in New York and Vermont. Mr. Dake is an accomplished and acclaimed leader who heads a team of more than 5,000 partners (employees). These partners own more than 40% of the company through their Employee Stock Ownership Plan. Employed at Stewart’s since 1985, he holds a BA in Economics from St. Lawrence University.

    “Gary is a well-respected and admired leader both within his company and throughout the Capital Region community,” shared Tom Putnam, Founder and Executive Chairman of Fenimore Asset Management. “His integrity, expertise, success, and entrepreneurial spirit should benefit our investors over the long term.”

    In addition to his extensive business career, Mr. Dake is very active as a community leader and Stewart’s Shops is dedicated to community giving and support. Between the company, Dake family foundations, and Stewart’s “Holiday Match Program,” millions of dollars have been donated to thousands of local charities. Mr. Dake is also the founder of the Dake Foundation for Children. The nonprofit was established “to provide opportunities for children with disabilities to enjoy more independence, inclusion, and fun.”

    Founded in 1974, Fenimore Asset Management is an independent, nationally recognized investment manager with more than $4.12 billion in assets under management (as of September 30, 2023) through its Cobleskill and Albany offices. The firm’s team focuses on in-depth research, investing in the stocks of carefully selected quality businesses, and providing its investors with highly personalized investment services. Fenimore offers both individually managed portfolios and a family of mutual funds (FAM Funds) that can be used for retirement and other long-term investment planning.

  • Gary Dake Joins Fenimore’s Board

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Part One: CEO Anne Putnam Discusses Fenimore’s 50th Anniversary and Key Elements with Walter Thorne – Albany Executive Insights

Part One: CEO Anne Putnam Discusses Fenimore’s 50th Anniversary and Key Elements with Walter Thorne – Albany Executive Insights

Anne Putnam, CEO, is honored to join Walter Thorne, Market President and Publisher of the Albany Business Review, for the Albany Executive Insights series, presented in partnership with the Albany Business Review. In Part 1 of this exclusive interview, Anne speaks to what differentiates Fenimore Asset Management as it approaches its 50th anniversary, including these key elements.

  1. Consistent Investment Research Process
  2. Tenure & Longevity of Experience
  3. Commitment to Community

“We will remain committed to service and that is the reason for the expansion in the Capital Region, because we want to be where investors are.”

— Anne Putnam, CEO

This sponsored interview about the Firm’s advisory services has been published by The Albany Business Review (“ABR”), a non-advisory client that provides various marketing services to Fenimore. Cash compensation was given in exchange for the publishing of this sponsored content. Due to Fenimore’s relationship with ABR, material conflicts of interest include but are not limited to a financial incentive to promote this sponsored interview.  These compensated endorsements are intended to objectively showcase the Firm and its services; however, it is important to understand that compensation may have influenced the content of this article therefore we encourage clients and prospective clients to independently research and assess the Firm’s investment offerings, taking into consideration their unique financial goals, risk tolerance, and investment preferences before making any investment decisions.

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Letter From Cobleskill: Autumn 2023

Letter From Cobleskill: Autumn 2023

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    Dear Fellow Investor,

    Earlier this year, an executive of a successful business greeted me by asking, “When’s the market going up?”

    At first, I thought he was joking. The stock market was up and had been for some time. Then I realized: he was being genuine. The negative news headlines — high interest rates, inflation running rampant, a potential recession on the way — have dominated the financial landscape to the point that many people are not watching the market or even looking at their quarterly statements for fear of what they think they will see. The market is still up (as of 9/30/2023).

  • Letter From Cobleskill Autumn 2023

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SHIRKING THE WAVE, SEEKING LONG-TERM VALUE
Long-term asset growth for our investors has been one of Fenimore’s defining goals since our founding in 1974. The effects we are seeing today come from the seeds we planted — and the discipline we exercised — two and three years ago. That’s when we avoided buying so-called “pandemic winners,” such as ultra-hot businesses that we viewed as speculative, were thriving on low interest rates, or were saddled with much debt. Instead, our team held firmly to our steadfast investment philosophy that has guided us for nearly a half-century.

For example, many people hopped on the technology wave during COVID. One stock went from a $100 per share in 2019 to nearly $600 during 2020’s last quarter. Today, it’s right back to where it started. The wave crashed. For this specific firm, there was simply no long-term value in our view — and we’re looking to create long-term value for our investors.

OUR MARKET-TESTED APPROACH
Fenimore seeks to invest in quality small to mid-size companies that are available at a price below what we estimate to be their intrinsic value. We define “quality” as companies that have:

  • Business models we understand, strong balance sheets, clear competitive advantages, free cash flow, and growing cash profits.
  • The potential to thrive in the best economic times and weather the inevitable storms to deliver long-term, sustainable growth.
  • Established and ethical management teams that we know, welcome our visits and questions, and talk candidly with us about their opportunities and challenges.

A STATEMENT OF CONFIDENCE
As we head into the fourth quarter, our research team continues to hit the road and phone to talk with the companies we own and those we’re considering buying — gathering insights into their businesses, fact-checking our instincts, and seeking to ensure that the investments we’re making on your behalf meet Fenimore’s stringent criteria.

In just the week before I’m writing this, we visited with five companies including a swimming pool supplier, software developer, and an electronic parts manufacturer. Each time we came away with strengthened confidence in their long-term potential and the role they play in delivering value to our investors.

We are optimistic that inflation could be under control next year, and economic growth and business fundamentals will be the main topics of discussion. Meanwhile, our analysts are avoiding industries that are sensitive to interest rates and susceptible to credit losses. We are planting quality seeds that we believe should produce value over time.

OUR NEW CEO
As Fenimore looks ahead to an exciting future, it’s my pleasure to congratulate Anne Putnam on her promotion to Chief Executive Officer (CEO), effective October 1, 2023.

A second-generation Fenimore leader and founding family member, Anne grew up in the firm her father, Tom Putnam, founded. After earning her professional credentials outside our walls, she returned 17 years ago to help us chart our future. Anne has contributed significantly to Fenimore’s growth, most recently as Senior Vice President since 2017. She has played a key role in maintaining and enhancing our strategic vision and value investment philosophy, as well as our enduring commitment to community philanthropy.

What’s next for me? After serving in the dual roles of CEO and Chief Investment Officer (CIO) since 2019, I am pleased to focus full time on my CIO role and the work I love most — guiding the firm’s investment management strategies and leading our talented research team as we seek quality companies that we believe should provide long-term value for our investors.

LET’S TALK
Any time you have questions or want to talk about your investments, please visit us in either our Cobleskill or Albany office, call 800-932-3271, or email us at info@fenimoreasset.com.

Best wishes for a wonderful conclusion to 2023 and thank you for your confidence.

Sincerely,
John D. Fox, CFA®
CHIEF INVESTMENT OFFICER

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Fenimore Names Anne Putnam CEO

Fenimore Names Anne Putnam CEO

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    Second-generation leader brings deep relationship management experience and lifelong commitment to firm’s core values to new role.

    Fenimore Asset Management, manager of the FAM Funds family of mutual funds, has promoted Anne Putnam to Chief Executive Officer, effective October 1, 2023. Anne’s promotion comes as the firm founded by her father, Tom Putnam, in 1974 nears its 50th year of service to investors in the Greater Capital Region and across the country.

    Ms. Putnam is an accomplished leader who has delivered results, built strong relationships, and carried out a vision of growth over her two-decade investment management career. Since joining Fenimore in 2006, she has contributed significantly to the firm’s success, most recently as Senior Vice President, a role she’s held since 2017. During her career, Ms. Putnam has served investors and financial institutions in a variety of capacities while immersing herself in all aspects of Fenimore’s operations, beginning as a client relationship manager for separately managed accounts.

  • Anne-Putnam

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  • Anne Putnam & Senior Leaders

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    John Fox, CFA®, Chief Investment Officer; Tom Putnam, Founder & Executive Chairman; Anne Putnam, Chief Executive Officer; Christian Snyder, J.D., CFA®, President

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    “As the founder and executive chairman of Fenimore, I am excited about everything Anne brings to her new role for our investors, associates, and community. She is a proven leader with a deep understanding and commitment to our investment philosophy, and the knowledge, experience, and drive to help guide our firm to new levels of investor satisfaction and growth,” Mr. Putnam said.

    Fenimore Asset Management is an independent, nationally recognized investment manager with more than $4.27 billion in assets under management as of June 30, 2023, through its Albany and Cobleskill offices. As a research-based and service-centric manager, Fenimore offers investment solutions to individuals, families, and organizations to help nurture and grow their capital over the long term. The firm’s team focuses on in-house research, investing in carefully selected quality businesses (stocks), and providing its investors with highly personalized investment solutions.

As a second-generation leader, Ms. Putnam has played a key role in maintaining and enhancing the strategic vision and value investment philosophy established by her father when he founded the firm as a means to manage family money after the Putnams sold the successful textile business started by Ms. Putnam’s grandfather. She has also been integral to continuing Fenimore’s half-century commitment to philanthropy in the community. 

“Fenimore is an investment factory, like my grandfather built with his business, based on relationships with our investors, financial institutions, and portfolio-owned companies. Due to our values, we remain committed to investing in our community and giving back; it is humbling to walk in the footsteps of my forefathers,” said Ms. Putnam. “My goal as CEO is to maintain our presence regionally as a partnership owned by family and associates, expand our presence in the Capital Region, and continue to offer our investment strategies nationally through various channels. The same culture — in values-based management plus investment philosophy and process of these last fifty years — will guide us forward.”

Ms. Putnam succeeds John Fox in the CEO role. Mr. Fox will continue in his role as Chief Investment Officer (CIO) and dedicate his full attention to guiding the firm’s investment management strategies. Ms. Putnam’s promotion is the latest step in Fenimore’s carefully planned leadership succession strategy, which included the appointment of Christian Snyder as president in 2022.

Ms. Putnam is active in the community — both in Schoharie County where she was born and raised and throughout the Capital Region — through volunteerism and giving back. She currently sits on the boards of Double H Ranch in Lake Luzerne and Lakeside Chapel in Lake George.

“Anne is a highly-respected professional who is dedicated to serving our investors, our associates, and our community,” shared Michael Saccocio, a member of the Fenimore Asset Management Board of Directors and Executive Director, City Mission of Schenectady. “She exemplifies Fenimore’s commitment to excellence and is a great choice to serve as our next CEO.”

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Making a difference over the long-term

Making a difference over the long-term

Fenimore joined forces with Siena College Men’s and Women’s Basketball teams and CAPTAIN Community Human Services to host a Court Rehab Dedication and Ice Cream Social at the newly renovated basketball court at Cheryl’s Lodge in Clifton Park, New York.

Cheryl’s Lodge was the winning recipient of this renovation as voted on by attendees at the Men’s and Women’s Siena basketball games last season.

The teams, CAPTAIN, and local fans all came together to celebrate making our community better and the lasting impact it will have on kids and their families.

“For our fans to come here to Cheryl’s Lodge, obviously CAPTAIN and Fenimore Asset Management being able to put this on to refurbish a court that the youth of the community will be able to really enjoy, it means a lot,” said Carmen Maciariello. “I’m thankful to be in this position to be able to help.”

SIENA COURT REHAB AND ICE CREAM SOCIAL

The kids at Cheryl’s Lodge named the court, The Star Court, as a reminder that every person that steps on the court is special. The Star Court was dedicated in honor of Dr. Bill Long for all he has done to help CAPTAIN.

The mission and vision of CAPTAIN Community Human Services supports and empowers people of all ages to reach their goals of personal growth and self-sufficiency, while also strengthening communities. Cheryl’s Lodge is a program of CAPTAIN, which is a Community Outreach Center offering programming for children, families, and seniors.

See highlights of the evening here:
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Makayla Tebano joins Fenimore as Vice President, Marketing

Makayla Tebano joins Fenimore as Vice President, Marketing

Fenimore Asset Management, an independent, Capital Region-based investment advisory firm and manager of the FAM Funds family of mutual funds, has appointed Makayla Tebano to Vice President of Marketing. Makayla, a Capital Region native, leads the firm’s marketing and brand strategy.

“Makayla brings more than 20 years of experience working across different marketing channels and will be a valuable asset to the firm’s marketing strategy as we look to grow our presence within the Capital Region,” said Fenimore’s President Christian Snyder, J.D., CFA®. “Her expertise will strengthen the firm’s initiatives while remaining true to the core of what we provide — a distinctive investment research approach and high-touch, personalized service.”

Prior to joining Fenimore, Mrs. Tebano was the Sr. Director of Marketing for MVP Health Care where she spent 20 years in a variety of marketing and leadership roles. She is a Leadership Capital Region Class of 2016 alumna and earned a BA from The College of Saint Rose. 

Founded in 1974, Fenimore Asset Management is an independent, nationally recognized investment manager with more than $4.27 billion in assets under management (as of 6/30/2023) through its Cobleskill and Albany offices. Fenimore offers both individually managed portfolios and a family of mutual funds (FAM Funds) that can be used for retirement and other long-term investment planning. The firm’s team focuses on in-depth research, investing in carefully selected quality businesses, and providing its investors with highly personalized investment services.

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