Value stocks have had a difficult time over the last few years, but things could be looking up, especially for investors who seek out lesser-known names.
In recent interviews with me, Jim Zimmerman, Abigail Zimmerman, and Ara Laterovian with Lowell Capital, and Ted Rosenthal with TMR Capital each shared their two top under-the-radar stock picks. Lowell Capital chose Macfarlane Group and Academy Sports and Outdoors, while Rosenthal selected REV Group and Celestica.
Macfarlane Group
Macfarlane Group is the leading specialist distributor of protective packaging materials in the U.K. It operates in the U.K., Ireland, the Netherlands and Germany, providing industrial and retail customers with a wide range of protective packaging materials.
The Lowell Capital team was initially drawn to Macfarlane Group’s “highly cash-generative business model, ‘Ft. Knox’ balance sheet, sustainable and resilient business model, entrenched customer relationships, high ROIC business model, non-capital intensive business, disciplined management team, and long-term growth path.”
The Lowell team highlighted Macfarlane’s resilient business model, reporting that it consistently passes along raw material pricing changes to customers. As a result, management focuses more on gross profits than top-line revenues. They believe it’s largely due to high switching costs among customers.
Macfarlane Group has also gone through a successful turnaround and growth strategy under CEO Peter Atkinson.
“We believe MACF can drive sales growth through accretive acquisitions alongside modest organic growth,” the Lowell team said. “We believe MACF’s highly cash-generative and high-ROIC business model can grow adjusted EBITDA from £36 million in 2023 to £45 million by 2027 with zero net debt and trade for 8x adjusted EBITDA for a market cap and enterprise value of £360 million.”
They estimate that Macfarlane Group could be worth £2.25 per share, versus its current price of around £1.12 a share. Additionally, the Lowell Capital team believes the company could be an attractive M&A target.
Academy Sports And Outdoors
Academy and Sports Outdoors is a sporting and outdoor recreational retailer in the U.S., operating 282 stores across 18 states. The company is the second-largest sporting goods retailer in the country.
The Lowell team was initially drawn to Academy and Sports Outdoors for its high cash generation, low cash flow multiple, strong balance sheet and strong growth prospects. They highlighted several characteristics that they like, including a highly resilient business model, a cash-generative business, and a strong focus on value-added services.
The Lowell team also likes its attractive valuation at less than 5x adjusted EBITDA and high single-digit free cash flow yield, its record of strong sales and profit growth, its disciplined management plan and “Ft. Knox” balance sheet with net debt of about $100 million, its long-term strategy to grow sales to $10 billion and net income margin to 10% by 2028, and its high-ROIC business model with limited capital requirements.
REV Group
REV Group designs, manufactures and distributes specialty vehicles like fire and emergency vehicles, commercial vehicles, RVs, and related aftermarket parts and services. The company is the result of several bolt-on acquisitions between 2006 and 2020 and was founded by private equity firm American Industrial Partners.
Rosenthal was initially drawn to REV Group as a short position because he suspected it might be overearning. However, he switched his thesis from short to long because record backlog growth quickly drove large price increases that haven’t yet appeared in the company’s financials.
“As throughput and margins normalize in Specialty Vehicles, and as business rebounds in RVs (from depressed levels), EBITDA margins should expand to 11% by 2026,” Rosenthal explained. “Ten times normalized 2026 EBITDA results in 144% upside for a 49% IRR.”
He added that REV Group enjoys a high and growing market share in an attractive oligopoly industry for its Specialty Vehicles segment, while Fire and Emergency demand tends to be stable because it’s driven by replacement cycles. Prices in F&E have risen 3% over the last few decades with no down years, and the industry has consolidated, leading to record-high backlogs and improved pricing power.
“Business quality is also decent,” Rosenthal pointed out. “There is a lot of customization/ value add, variable cost structure, low maintenance capex, structural ability to drive attractive levels of return on invested capital, and strong revenue visibility in certain product categories with longer backlogs.
Celestica
Celestica is a leading electronics manufacturing services (EMS) and outsourced manufacturer that manages global networks capable of delivering customized supply chain solutions. Rosenthal was initially drawn to the stock because he was seeking a value-oriented way to gain exposure to artificial intelligence.
He feels Celestica is an underappreciated AI play, noting that it’s trading at around 20x P/E. He estimates 12x 2026 EBITDA for 83% upside and a 22% investment rate on return.
“CLS has historically been a decent business but always traded at a low valuation multiple because of its low margins and difficulty in predicting the business’ financials,” Rosenthal explained. “EMS businesses operate in a competitive industry (more so with consumer electronics, where CLS has minimal exposure) with very thin operating margins, are subject to the performance of their end markets, and there is very little visibility beyond the next quarter.”
Preparing For Value Stocks To Make A Comeback
Market breadth increased toward the end of 2024, giving many value stocks a boost versus their growth counterparts. However, according to BlackRock, many investors have had limited exposure to value because it’s just a small portion of the market indexes.
As a result, it might take a bit of a deeper dive to gain access to this segment of the market, either through value indexes like the SPDR S&P 500 Value ETF or similar actively managed funds. However, investors who are prepared for value to make a comeback will be better positioned for when it happens, like during late 2024.
It’s anyone’s guess whether value will continue to hold on in 2025, but so far, things are looking up. The SPDR Value ETF is holding its own against the growth-oriented S&P 500, with both up more than 3% year to date. At this point, it looks like we’re in a holding pattern between growth and value, making it a good time to hold exposures to both.
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