With most of the major stock indexes hitting all-time highs lately, one might assume that the best deals have already been wrung out of the market. As value investors who’ve been at this for decades, we know that’s not true. The trick is knowing how to find opportunities that are hiding in plain sight, including businesses that have struggled recently but are poised to recover. This requires hard work, patience, and a disciplined approach to determining why a business has hit a rough patch and what might make it attractive going forward.
At Heartland, that process begins with our 10 Principles of Value Investing™, which guides all of our investment decisions. One of the key elements of our 10 Principles is attention to valuations. The price investors pay for a stock not only determines their potential returns, it establishes their margin of safety.
From a 30,000-foot perspective, large parts of the market are historically expensive. The chart below, for instance, shows that based on Enterprise Value-to-EBITDA (Earnings Before Interest , Taxes, Depreciation, and Amortization) over the next 12 months, the Industrials sector of the Russell 2000 Index is trading at an all-time high.
Source: FactSet Research Systems Inc. Monthly data 3/31/2006 to 3/3/2026. The data in this chart represents the Russell 2000 Industrials Index EBITDA LTM Margivn vs. EV/NTM EBITDA. The Russell 2000 Industrials sector represents small-cap US companies involved in manufacturing, construction, aerospace/defense, and transportation. The Russell 2000 Index is a market-capitalization-weighted stock market index that tracks the performance of approximately 2,000 of the smallest publicly traded companies in the U.S. It is not possible to invest in an index. Past performance does not guarantee future results.
As active managers, though, we aren’t forced to own every company in the Industrials sector, as an index fund would. We have the freedom to pick and choose only those companies that are outliers to the broader trend. A good example is Sonoco Products (SON), a leading manufacturer of industrial and consumer packaging products that we own in the Heartland Value Fund. As illustrated in the next chart, Sonoco’s shares diverged from the Industrials sector starting in 2021, owing to a variety of factors including slower revenue momentum, rising cost pressures, supply chain headwinds, and some strategic moves the markets disagreed with.
Source: FactSet Research Systems Inc. Monthly data 2/28/2006 to 2/26/2026. The data in this chart represents the Total Return, indexed at 100, of Sonoco Products Co (SON) compared to Russell 2000 Industrials. The Russell 2000 Industrials sector represents small-cap US companies involved in manufacturing, construction, aerospace/defense, and transportation. The Russell 2000 Index is a market-capitalization-weighted stock market index that tracks the performance of approximately 2,000 of the smallest publicly traded companies in the U.S. It is not possible to invest in an index. Past performance does not guarantee future results.
When we detect divergences like this among companies on our watch list, we look for signs that management is righting the ship. One clue is ‘Positive Earnings Dynamics,’ which is another one of our 10 Principles. All else being equal, we like companies with improving profits and upwardly trending estimates. Assessing the company’s potential earnings for upcoming quarters is a good tool to ascertain whether we believe the stock is ready to join our portfolio. A positive profit outlook is potentially a ‘Catalyst for Recognition,’ which is another one of our 10 Principles. We like to see a strong catalyst in place that’s likely to cause to drive the stock price higher in the near term.
This is how we turn discipline into opportunity, as we utilize several of our 10 Principles in concert to find well-managed, financially strong businesses with promising earnings dynamics and that are poised to see that reflected in their stock prices.
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Past performance does not guarantee future results.
Investing involves risk, including the potential loss of principal.
Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.
The Value Fund invests primarily in small companies selected on a value basis. Such securities generally are more volatile and less liquid than those of larger companies.
The Value Fund seeks long-term capital appreciation through investing in small companies.
There is no guarantee that a particular investment strategy will be successful.
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.
Portfolio holdings are subject to change. Current and future portfolio holdings are subject to risk.
As of 3/3/2026, the Heartland Value Fund held approximately 0.10% of the total shares outstanding of Sonoco Products Co (SON).
An investor should consider the Funds’ investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information can be found in the Funds’ prospectus. To obtain a prospectus, please call 800-432-7856 or visit heartlandadvisors.com. Please read the prospectus carefully before investing.
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