At Roosevelt Multi-Cap Fund, Jason Sheer buys companies such as Hasbro, Compass Minerals, Wynn, and Ferro that are transforming their business models
We are agnostic when it comes to investment style. We buy both growth and value stocks of any size. Our key advantage is the ability to identify positive changes at companies while managing the downside risk. We often look for companies that are transforming themselves from one business to another and are therefore being misperceived by the market. These stocks may be trading at valuations that are inappropriately low: They are falsely identified as belonging to a certain industry group and trading at prices representative of that sector. If we are correct that the company is being misunderstood, there is the potential for significant stock appreciation. If we are incorrect, we have exposed ourselves to limited downside risk, since we are paying an appropriate valuation for the stock.
The Stats: New York-based Roosevelt Investment Group manages $3.7 billion in assets and advises on $1.7 billion. Its Multi-Cap mutual fund (BULLX), managed by Sheer and others at the firm, has a five-year annualized return of 5.3 percent, vs. 2.8 percent for the Russell 3000 Index.
Sheer on his picks...
Hasbro (HAS) has a joint venture with Discovery Communications (DISCA) to start a kids' TV channel that would feature many of its toys. This could add significant value to the company. After the news of the partnership came out, we believed the market was still viewing Hasbro as a toy company instead of a broadly diversified media company. And for the last five years the sales of media-backed toys have expanded 30 percent, vs. a 14 percent drop in non-entertainment-backed toys.
2. Compass Minerals
Compass Minerals (CMP) is largely perceived as a salt supplier for the highway deicing market, even though 25 percent of its cash flow comes from creating a specialty fertilizer. Sulphate of potash (SOP) is a fertilizer used principally for crops such as fruits and vegetables. As the demand for crops outstrips supply, farmers demand more SOP to maximize their harvest, and Compass has benefited. It's trading at about 15 times forward earnings; its peers are trading at 25 times.
3. Wynn Resorts
Our investment in casino company Wynn Resorts (WYNN) is largely a play on Macau, since most of the company's value is from its Macau operations. That market is growing rapidly—over 50 percent year-to-date. The company is also developing a casino in nearby Cotai, which could more than double its profitability. Less than 1 percent of China's mainlanders visit Macau each year, vs. 10 percent of Americans who visit Las Vegas. This business has room to continue growing.
Ferro (FOE) is a specialty materials and chemicals company that produces coatings and films for a variety of markets. It's also a clean energy company. Ferro is one of two dominant players in the production of pastes and powders that go into solar cell panels. That business is becoming a larger portion of the company as it outgrows other units and carries higher margins. This will help transform what is largely a cyclical company into one with a strong growth component. It trades at 12 times forward earnings.