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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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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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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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FAM Funds’ 37th Annual Investor Meeting

FAM Funds’ 37th Annual Investor Meeting

Fenimore Asset Management, manager of the FAM Funds, welcomes you to join us & hear:

  • How our new generation of leadership continues to focus on in-depth, firsthand research and service excellence.
  • The latest insights from our investment research analysts’ company visits.
  • An evaluation on long-term investing through various market cycles — despite the news headlines at any given time.
Tuesday, October 10, 2023
4:00–5:00 p.m.

Cobleskill-Richmondville High School Auditorium
1353 State Route 7, Richmondville, NY
Refreshments & Complimentary Gift

BRING A GUESTIt’s a great opportunity to meet our team.

MEETING Q&A — Questions can be submitted when you RSVP or asked during the meeting.

RSVP

or call 800-932-3271
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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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Shaun Fagant

Fenimore Promotes Shaun Fagant

Fenimore Promotes Shaun Fagant

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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, has promoted Shaun Fagant to Regional Director. In his new role, Mr. Fagant will share Fenimore’s distinctive investment approach and solutions with individuals, families, nonprofits, small businesses, and other organizations.

    “Shaun’s extensive experience in working one-on-one with investors and helping them achieve their financial goals should be a great benefit to people in our region,” said Fenimore Senior Vice President Anne Putnam. “He is dedicated to service excellence and developing caring, long-term relationships with our investors that are anchored in trust.”

    Prior to his promotion, Mr. Fagant served on the FAM Funds Shareholder Services team as a Shareholder Relations professional. Previously, he was a Team Leader at Ayco (a Goldman Sachs Company) overseeing a group of financial planners. Mr. Fagant has more than 17 years of financial planning experience and earned his master’s degree in Business Administration from the University of Massachusetts.

  • Shaun Fagant, Regional Director

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    Shaun Fagant, Regional Director

Founded in 1974, Fenimore Asset Management is an independent, nationally recognized investment manager with more than $4.08 billion in assets under management (as of 3/31/2023) 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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Marc Roberts

MID-YEAR INVESTOR UPDATE: Resiliency amidst signs of moderation.

MID-YEAR INVESTOR UPDATE:
Resiliency amidst signs of moderation.

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    As we approach the middle of the year, we thought it would be appropriate to provide an update of what we are seeing, hearing, and thinking regarding the economy and your portfolios.

    Following the close of Q1, our in-house investment research team has been busy parsing through 100+ earnings calls and transcripts from the companies they follow. No doubt, we did hear signs of moderation, particularly towards the end of the quarter. This moderation is being felt across a wide range of industries including industrial distribution, technology hardware, healthcare analytical equipment, and consumer facing businesses—particularly those impacted by higher interest rates like used autos and homebuilding supplies. In some cases, moderation means that businesses in these industries will grow at a slower rate, while in other cases certain businesses may see a decline compared to the high levels of activity achieved in 2021 and 2022.

  • Marc Roberts

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    Marc Roberts, CFA®
    Portfolio Manager, FAM Value Fund

Encouragingly, despite signs of moderation, we heard an equal amount about resiliency. Consumer spending and the labor market has remained robust, despite the pace of interest rate increases aimed at combating higher levels of inflation. Resiliency was felt across several industries including insurance brokerage, health care procedures, travel, and general industrial. For some businesses, positive results are being driven by continued solid demand, while others are benefiting more from latent pricing power. Our focus on investing in businesses that possess differentiated attributes has helped with navigating this dynamic environment and we’ve been pleased with our companies ability to get the appropriate value for the products and services they provide.  

Resiliency has not only been present in the economy, but in the stock market as well.  Despite news headlines and concerns at the macroeconomic level, the broader market has achieved gains year to date. 

LOOKING AHEAD

We continue to monitor the ongoing developments in the banking and commercial real estate industries (read our latest banking update). Tightening credit standards and greater risk aversion may have been a culprit behind the moderation that corporate America began feeling late in the quarter and could serve to further moderate activity going forward.

At Fenimore, we know that we can’t predict potential macro eventuality. However, we continue to have high conviction in our ability to mitigate risk, and our approach to selecting quality, resilient businesses.  We remain confident that over the long-term, our businesses and the leadership teams behind them can drive long-term value creation, that is expected to benefit our collective portfolios.    

STAY CONNECTED

If you have any questions about your investments, you can 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 and we hope you have a safe and enjoyable summer.

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