Our Map for Navigating the Depths of Value

We use our 10 Principles of Value Investing™ to populate a mid-cap portfolio with two buckets of stocks:



We use one straightforward process to populate a portfolio with two buckets of stocks:

  1. We have the value bucket, which we define as good companies with strong prospects, trading at below market valuations, often for reasons that we consider cyclical or otherwise temporary in nature.
  2. The second bucket is the deep value bucket. These are companies with deeply discounted valuations—somewhat more marginal companies—but especially when the balance sheet is strong and the bar set by the market is low enough to walk over in the future, we will buy these names as well.

In the mid-cap portfolio, we have four general investment categories that spread across the value and deep value buckets:

  1. Self-help stories are investment cases where a company can improve its fate through efforts and initiatives that are largely within its own control. These can include non-core divestitures and other portfolio streamlining actions, cost-cutting, or working capital improvements.
    Video: A self-help story example
  2. The second category are what we like to call cyclically depressed stories with significant embedded earnings power. In these cases, we are looking to buy companies based on what we consider normalize operating margins and earnings. These stocks may not offer attractive current price-earnings ratios, but offer very attractive P/E ratios on what we consider to be normalized outcomes. The valuation techniques—based on current operating results—that we point to in these cases include price-to-book, enterprise-value-to-sales, free cash flow yield on the enterprise value of the company, and a host of other techniques outside of price-earnings.
    Video: A cyclically depressed story
  3. In the third category of holdings, we like to use the phrase, “duration call,” to describe investment cases where the market is already assuming declining fundamentals. This is often evidenced by compressing multiples of earnings, free cash flow, and EBITDA. And oftentimes the dividend yield of the company is on the rise. We say duration call because we are expressing a view that current operating fundamentals and results are more sustainable than what the market is expecting.
    Video: A duration call example
  4. The fourth general investment case in our portfolio are what we call transition stories— a company is significantly reshaping its product or service offering in order to respond to evolving end markets or customer needs. Or, to better focus itself for future value creation.
    Video: A transition story example
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Heartland Advisors Value Investing Portfolio Manager Colin McWey

Colin McWey

McWey, CFA, is Vice President and Portfolio Manager of the Select Value and Mid Cap Value Funds and their corresponding separately managed account strategies. He has 16 years of industry experience, 9 at Heartland.

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Past performance does not guarantee future results.

The Mid Cap Value Strategy invests in mid–sized companies on a value basis. Mid-sized securities generally are more volatile and less liquid than those of larger companies.

Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

The statements and opinions expressed in the articles or appearances are those of the presenter. Any discussion of investments and investment strategies represents the presenters' views as of the date created and are subject to change without notice. The opinions expressed are for general information only and are not intended to provide specific advice or recommendations for any individual. Any forecasts may not prove to be true.

Heartland’s investing glossary provides definitions for several terms used on this page.

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The Heartland Funds are distributed by ALPS Distributors, Inc.

Separately managed accounts and related investment advisory services are provided by Heartland Advisors, Inc., a federally registered investment advisor. ALPS Distributors, Inc., is not affiliated with Heartland Advisors, Inc.