Powerful Profits – Increasing Shareholder Value

By John Fox

Many investors are frustrated. Prolonged unemployment, America’s deficit spending, rising food and energy prices, a double-dip in the housing market, the European debt crisis, a slow U.S. economy, and more are sources of consternation. However, despite the challenges the economy is facing, we see opportunities in the stock market for long-term growth.

How do we make money in stocks?

It is crucial to invest in financially healthy companies in order to make money in the stock market when faced with a slow-growth economy. These durable enterprises can use their cash profits in five powerful ways to outpace economic growth and increase shareholder value. They are: make acquisitions, invest overseas, invest in the business, allocate capital, and pay dividends.

Mergers and Acquisitions

Strong companies can acquire businesses to accelerate their growth. In fact, some of the Funds’ holdings have used their abundant cash profits to purchase smaller companies in their industries.

Invest Overseas

Many U.S. companies are taking advantage of faster growing economies around the world. All of our industrial companies sell products globally with some achieving more than 50 percent of their sales internationally.

Invest in the Business

New products, more salespeople, or additional store locations can help increase sales. For example, retailers can open stores that could result in sales growth. Also, manufacturers can develop new products. We consistently see our retail and manufacturing holdings invest in their operations in order to increase revenue.

Capital Allocation

Enterprises can use cash profits wisely to increase their economic worth. Paying off debt or buying back shares can increase the value of a company’s stock. The Funds have holdings that have pursued both of these strategies successfully.

Dividends

When a business does not have a good investment opportunity, it makes sense to pay a shareholder dividend. Dividends have been an important part of equity returns and should be meaningful going forward. A great quality about dividends is that they are cash payments so even if the price of the stock fluctuates, the shareholder has their dividend in hand. Many of the Funds’ holdings pay sound dividends and are increasing them annually.

Cash profits must be used strategically to grow a business and increase shareholder value. Consequently, honest management teams with proven track records of deploying capital wisely to increase shareholder value must be at the helm. FAM Funds’ holdings, with cash reserves and seasoned leadership, cause us to be optimistic that we can make money in stocks regardless of the economy.

Please see Fenimore disclosure.