Picking Through The Weeds

Please wait while we gather your results.

Presenter

Heartland Advisors Value Investing Portfolio Manager Bradford A. Evans

Bradford A. Evans

Evans, CFA, is Senior Vice President and Portfolio Manager of the Value Plus Fund and its corresponding separately managed account strategy. He has 22 years of industry experience, 19 at Heartland.

Transcript

Heartland is led by our 10 Principles of Value Investing™. We look for companies that are undervalued based upon earnings, cash flows, book values—typically having very strong balance sheets, with strong management teams, wrapped around a catalyst which we think will unlock the value of the security we’ve identified.
 
You may also know that Heartland Advisors is a contrarian value investor, meaning we like to zig when the market zags.
 

Opportunity in the Agricultural Space

That contrarian mentality has led us to look for opportunity in the agricultural space, a sector that has had a fairly lengthy bear market, spanning almost three years.
 
Our screens have unearthed what we think is a diamond in the rough, American Vanguard, a California-based herbicide/insecticide provider targeting numerous crops: from corn to cotton, fruits and vegetables, and peanuts, amongst others—a very, very diverse portfolio targeting numerous end markets, with very little concentration in any one end market.
 
American Vanguard controlled what they could through to the downturn. They cut costs aggressively, they reduced inventory, and they paid down debt. They got their house in order as the macro environment was fairly hostile. We think this positions the company for significant operating leverage as headwinds turn to tailwinds, as we see three principle catalysts that we think will unlock the value of American Vanguard over the next 12 to 24 months.
 
Heartland Advisors Value Investing Three Catalysts Graphic
 

Catalyst 1: Cyclical Recovery in End Markets

First and foremost, a cyclical recovery is starting for their end markets. We think a cyclical recovery in their various crop chemistries and insecticides will allow for modest organic growth: roughly 5%.
 

Catalyst 2: Industry Consolidation

Also, we see American Vanguard being a beneficiary of significant industry consolidation, which is forcing large players to divest portfolios of ag chemistries.
 
Numerous M&A events have happened in the last 12 months: Bayer buying Monsanto, ChemChina buying Syngenta, and DuPont and Dow merging. This is creating a fertile environment for American Vanguard to deploy their flexible balance sheet to acquire high-value chemistries that fit their portfolio.
 

Catalyst 3: International Opportunity

Lastly, we see American Vanguard having significant blue-sky opportunity as they expand internationally.
 

American Vanguard Valuations

As we think the recovery gains steam, American Vanguard has significant earnings power to this recovery. We think $1-1.50 is a reasonable expectation for normalized earnings, which would yield a P/E of less than 15x.
 
Conversely, under that scenario, we think American Vanguard has the ability to generate over $100 million of EBITDA and significant free cash flows. Under that scenario, less than 6x cash flow looks very attractive to us in the current marketplace.
 
So, at the end of day, following our 10 Principles of Value Investing™, looking for undervalued stocks with low multiples of earnings, cash flow, and book values, with strong balance sheets, and a dividend—which AVD pays a small dividend—we see AVD fitting the bill for us in the portfolio today.

Email Sign Up

  • I am a financial professional or institutional investor
  • I am an individual investor

©2018 Heartland Advisors | 789 N. Water Street, Suite 500, Milwaukee, WI 53202 | Business Office: 414-347-7777 | Financial Professionals: 888-505-5180 | Individual Investors: 800-432-7856

Past performance does not guarantee future results.

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.

Economic predictions are based on estimates and are subject to change.

Investing involves risk, including the potential loss of principal.

There is no guarantee that a particular investment strategy will be successful.

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

Dividends are not guaranteed and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.

As of 9/30/2018, Heartland Advisors on behalf of its clients held approximately 2.92% of the total shares outstanding of American Vanguard Corporation.

Portfolio holdings are subject to change without notice. Current and future portfolio holdings are subject to risk.

Sector and Industry classifications are sourced from GICS®.The Global Industry Classification Standard (GICS®) is the exclusive intellectual property of MSCI Inc. (MSCI) and S&P Global Market Intelligence (“S&P”).  Neither MSCI, S&P, their affiliates, nor any of their third party providers (“GICS Parties”) makes any representations or warranties, express or implied, with respect to GICS or the results to be obtained by the use thereof, and expressly disclaim all warranties, including warranties of accuracy, completeness, merchantability and fitness for a particular purpose.  The GICS Parties shall not have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of such damages.

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

CFA® is a registered trademark owned by the CFA Institute.

ALPS Distributors, Inc., is not affiliated with Heartland Advisors.

top