Our investment objective is to identify opportunities in small capitalization value U.S. stocks. We perform substantial original research both on specific companies and the industries in which they operate. While we may selectively short individual stocks and indexes, our basic strategy is equity ownership in undervalued small-cap companies. We apply generally accepted valuation metrics to both balance sheets and income statements. We seek to identify industry or company catalysts which will change the perceived value of a business.
Catalytic factors we consider include:
- A balance sheet with little or rapidly decreasing debt.
- Changes in governmental regulation.
- Scale driven industry consolidation.
- Management succession issues or situations where management compensation is related directly to creation of shareholder value.
- Shareholder friendly governance posture.
- Tracking insider transaction filings.
- Turnaround situations where changes in the structure of a business or industry improve opportunities for realization of embedded shareholder value.
Wynnefield maintains a pro-active posture with respect to its portfolio names when it believes management is not taking appropriate measures to surface shareholder value, where corporate governance issues exist, or where outside assistance can be provided to a management working to implement value creating strategies. In numerous cases, we are Schedule 13-D and Form 4 filers. Wynnefield does not generally seek out Board representation. However, one of our members will occasionally, where the size of the position and potential return warrants a higher level of resource commitment, accept a board of director’s seat. We are not litigious and do not accept greenmail, operating only for the entire class of holders of which we are part.
WCI seeks to provide hedged returns, not only through individual securities, but through the use of Exchange Traded Funds (ETFs) when our research indicates systemic market or sector risk. Indications we look for include overextended valuations relative to earnings potential, increasing balance sheet risk, unfavorable marketplace changes for a company’s products, management instability, extreme speculative market moves, or the emergence of deteriorating industry macros.
Wynnefield employs tax effective trading strategies, focused on achievement of long term capital gains.