It's Been A Great October For Our Deep Value Portfolio

October brought some very good news for our collection of overlooked businesses that is the Small-Cap Deep Value Portfolio. Nine of our 16 holdings advanced over the past month, and seven gained more than 10%. The winners came from toys, furniture, coffee, motorcycles, software and frozen food. That is the kind of variety I like to see. We have several ways to make money without needing one industry to stay in favor.

The simple average of the holdings’ reported one-month changes was positive 4.38%. That is a snapshot of the stocks on our list, rather than an actual portfolio return, because the spreadsheet does not include position weights, cash, or transactions. The year-to-date figures below also describe calendar-year stock performance rather than our gains since purchase.

The business news is encouraging in several important places. JAKKS is growing sales and profits. Bassett is seeing better orders. Legacy Housing is delivering workforce housing. Nomad has raised its sales outlook. Several other companies are still working through difficult conditions, but their valuations leave room for substantial upside if operations improve.

JAKKS designs and markets toys, costumes and related consumer products, combining licensed entertainment properties with its own brands. Its business includes dolls, action figures, playsets, outdoor toys and Halloween costumes. Product selection, retailer orders and successful licenses matter a great deal, particularly around the holiday selling season.

The shares gained 25.32% over the past month and are up 93.65% this year. Third-quarter results released Oct. 22 gave investors substantial evidence of improvement. Revenue rose 20% to $254.2 million. Toy and consumer product sales increased 23%, while costume sales grew 13%. Operating income increased 27% to $37.4 million, and diluted earnings climbed to $2.48 from $1.74.

Inventory declined from a year earlier, and the board declared another quarterly dividend of 25 cents a share. Higher sales accompanied by lower inventory is a combination worth watching closely in a seasonal business.

At the spreadsheet’s 1.57 times tangible book value, this is no longer an undiscovered asset bargain. The appeal increasingly depends on stronger earnings supporting a higher business value. The recent results give that argument substance.

Bassett manufactures and markets residential furniture through its wholesale business, company-owned stores and independent dealers. Custom upholstery, wood furniture, outdoor furniture and design services give it several ways to reach households furnishing or updating their homes.

The stock advanced 20.46% for the month and is ahead 36.29% this year. Its latest report shows more than hopeful talk about an eventual housing recovery. Fiscal third-quarter revenue increased 3.4% to $82.8 million, operating income rose to $2.8 million from $600,000, and diluted earnings increased to 24 cents from nine cents.

There were encouraging signs in orders as well. Written retail sales increased 4.4%, wholesale orders rose 7.9%, and e-commerce written sales grew 48%. Management also announced plans to debut a new 44,000-square-foot High Point showroom in October.

Tariff refunds helped profitability, including $1 million recognized in gross profit during the quarter. We should account for that benefit when judging repeatable earnings. Still, improving orders and expense control are welcome developments.

At 1.26 times tangible book, with a listed yield of 3.53%, Bassett offers a combination of assets, income and recovery potential.

Coffee Holding buys and sells green coffee, roasts and packages coffee, and supplies branded and private-label products. It serves customers across the coffee trade rather than relying on a chain of company-owned coffee shops. Coffee prices, inventory costs and purchasing decisions can have an outsized effect on quarterly earnings.

The shares gained 15.52% for the month and are up 24.1% this year. Its September earnings report helps explain why the business deserves attention. Fiscal third-quarter revenue fell 9.3% to $21.7 million, but net income improved to approximately $2 million, or 35 cents a share, from a loss of $1.2 million.

Gross margin expanded to 25% from 9.4%. Favorable inventory purchases, tariff refunds and gains on trading activity contributed to that improvement. Those details matter because we should not assume every quarter will reproduce this unusually favorable margin.

Even after the rally, the spreadsheet values the shares at 0.88 times tangible book. A profitable quarter and an asset discount make an interesting combination. The next test is how much of the improvement survives more ordinary coffee-market conditions.

OneSpan provides cybersecurity and digital agreement technology. Its products help customers authenticate users, protect mobile applications, verify identities and complete electronic signatures. Financial institutions are an important market because secure access and reliable transaction records are essential to their businesses.

The stock rose 14.65% over the month and is up 64.01% year to date. Second-quarter revenue increased only 1%, to $60.5 million, but the mix was more encouraging. Subscription revenue grew 11%, digital agreement revenue increased 25%, and annual recurring revenue rose 7%.

Management raised full-year revenue guidance to $248 million to $252 million and adjusted EBITDA guidance to $67 million to $71 million. The DigipassONE authentication platform is another important development, bringing several security capabilities into a common offering.

This is not a uniformly accelerating business. Cybersecurity revenue and quarterly operating income declined from a year earlier. Nevertheless, subscription growth and higher guidance provide reasons for optimism. Third-quarter results are scheduled for Oct. 29.

At 5.77 times tangible book, OneSpan should be judged primarily on earnings, recurring revenue and cash generation rather than an asset discount.

Harley-Davidson sells motorcycles, replacement parts, accessories, riding apparel and related services. It also has a financing business and exposure to electric motorcycles through LiveWire. The investment case combines a globally recognized brand with the possibility of better operating performance.

The shares gained 12.83% during the month and are up 43.69% this year. The company’s “Back to the Bricks” strategy targets at least $150 million of cost reductions against its 2025 base, with full realization expected by the end of 2027. Product plans include the Sprint and a returning Sportster.

Second-quarter motorcycle-segment operating income improved to $72.3 million from $61.3 million. Worldwide retail motorcycle sales edged up 0.5%, and management raised its full-year shipment and motorcycle operating-income outlook.

Consolidated earnings nevertheless fell to 75 cents a share from 88 cents, partly reflecting changes in the finance business after receivables sales. That transaction makes comparisons more complicated than simply looking at the bottom-line percentage change.

Third-quarter results arrive Oct. 29. At roughly tangible book value, the shares still offer a relatively modest asset valuation. The opportunity is for cost savings and a healthier product lineup to produce more earnings from that capital.

Nomad owns leading European frozen-food brands, including Birds Eye, Findus, iglo, Ledo and Frikom. Its products include fish, vegetables, poultry and prepared foods sold through grocery retailers. These are established brands serving everyday household demand.

The stock gained 10.82% over the month, leaving it down just 1.41% for the year. The Oct. 6 investor day provided a meaningful update. Management projected third-quarter organic revenue growth of at least 1% and narrowed its expected full-year organic sales decline to 2% to 3%, compared with the previous 2% to 5% decline.

The company also outlined a multiyear improvement plan and said productivity initiatives should exceed its previously announced target. Management reported approximately $10.5 million of collective open-market share purchases over the preceding 13 months. That is a useful vote of confidence alongside the operating plan.

Using our valuation figures of 0.48 times sales and 11 times earnings, Nomad looks inexpensive for a business with established consumer brands and a potential return to growth. We are paying less than 50 cents for each dollar of annual sales, while the earnings multiple leaves room for appreciation if management delivers a sustained recovery.

The listed 5.6% yield adds to its appeal. Full-year adjusted EBITDA is still expected to decline, so the turnaround needs more time. Third-quarter results are scheduled for Nov. 4.

James River is a specialty property and casualty insurer operating in excess and surplus lines and specialty admitted insurance. These businesses handle risks that often require more specialized pricing and underwriting than standard insurance products.

The shares advanced 11.05% for the month but remain down 37.96% this year. Second-quarter net income available to common shareholders increased 59% to $4.4 million. The excess and surplus business reported a 92.8% combined ratio, meaning claims and underwriting expenses were below premium revenue on the reported measure.

Adjusted net operating income, however, declined to $10 million from $11.7 million. The results show progress, with additional work still required.

The spreadsheet’s valuation of 0.59 times tangible book makes the discount interesting. With insurers, the quality of reserves and future claims estimates determines how much confidence we can place in book value. Profitable current underwriting and stable reserves would strengthen the case for a smaller discount.

The company has scheduled its next earnings conference call for Nov. 10.

Epson is a Japanese technology and manufacturing company best known for printers and projectors. Its broader operations include commercial and industrial printing, inkjet printheads, robotics and precision technology. That gives us exposure to both established equipment businesses and industrial applications.

The shares gained 3.92% over the month and are up 75.8% this year. For the quarter ended June 30, revenue increased 14.4%, business profit rose 12%, and operating profit increased 45.7%. Those figures provide operating support for at least part of the stock’s strong performance.

October brought a capital and business alliance with Cluster Technology. The companies plan to develop advanced materials and components, including inkjet printhead components, while improving supply stability. This is an investment in the technology behind Epson’s products and its ability to extend that technology into additional markets. Epson also issued an October update on its share repurchases.

At the spreadsheet’s 1.41 times tangible book, Epson trades above its tangible asset base but retains a relatively moderate asset multiple. Continued profit growth, disciplined investment and shareholder returns are the factors that could sustain further progress.

Universal Electronics develops remote controls, wireless control systems, sensors and software for home entertainment and connected-home equipment. Its customers include television manufacturers, service providers and heating and cooling companies.

The stock gained 2.93% for the month and is up 53.58% this year. Second-quarter revenue fell to $73.2 million from $97.7 million, but gross margin improved to 35.4% from 29.9%. Cost reductions helped the company report net income of $1.6 million, compared with a $2.9 million loss a year earlier.

September announcements included an integrated HVAC and property-management solution with Della Connect and a smart thermostat partnership with Eneco. Those initiatives give us developments to follow as the company expands its climate-control business.

The board also declared a special dividend of 24 cents a share, payable Oct. 15. That distribution should be considered separately from the spreadsheet’s reported stock performance.

At 0.55 times tangible book, the asset discount remains substantial. The next step is translating better margins and new products into more durable sales.

American Outdoor Brands sells products for fishing, hunting, camping, shooting sports and outdoor cooking. Its outdoor product lines give the company opportunities to build customer loyalty through specialized equipment and new products.

The shares slipped 1.6% for the month but remain up 123.42% this year, the strongest calendar-year showing on our list.

Fiscal first-quarter revenue increased 25.4% to $37.3 million, while gross margin rose to 53% from 46.7%. The reported loss narrowed to $1.5 million from $6.8 million. The comparison benefited from retailer order timing: Adjusting for that effect, sales growth was 4.3%. That is still progress, but it gives us a more useful picture of underlying demand than the headline growth rate alone.

On Oct. 1, the board approved a new $10 million share repurchase program. That creates another potential source of shareholder value, provided shares are purchased at attractive prices.

At 1.53 times tangible book, we need to focus on the earnings the brands can produce as sales recover. The combination of better margins, a smaller loss and buyback authorization is encouraging after a difficult period.

West Fraser produces lumber, oriented strand board and other engineered wood products, along with pulp and related products. Its operations supply housing construction, remodeling and industrial customers across North America and Europe.

The stock declined 2.09% for the month but remains ahead 15.96% this year. Second-quarter sales increased sequentially to $1.434 billion, and adjusted EBITDA improved to positive $59 million from a first-quarter loss on that measure. The company still reported a net loss of $61 million.

Corporate developments included the ramp-up of its Henderson, Texas, sawmill and completion of the wind-down at its High Level, Alberta, OSB facility. Those actions concentrate production in more competitive facilities. Operating cash flow of $192 million also helped fund debt repayment.

Third-quarter results are scheduled for Oct. 28. At 1.52 times tangible book, the opportunity depends on earning power through the building cycle and the benefits of a more efficient production base. We should watch product pricing, cash generation and mill utilization closely.

Legacy manufactures affordable homes and provides financing to customers and manufactured housing communities. Its business addresses the need for housing at prices below those of many conventional homes. Workforce housing adds another source of demand.

The shares fell 2.76% during the month but remain up 45.95% for the year. Second-quarter results were strong: Revenue rose 32.3% to $66.3 million, net income increased 59.8% to $23.5 million, and diluted earnings advanced 65% to 99 cents a share.

Legacy shipped 113 homes under a 380-unit workforce housing contract during the quarter. Management expected the remaining deliveries during 2026 and said it was pursuing additional workforce opportunities, including those connected to data center construction.

Co-founder Curt Hodgson’s July retirement was another notable corporate development. The business enters this transition with strong reported earnings and an active sales pipeline.

At 1.22 times tangible book, Legacy offers an appealing combination of an asset base and demonstrated earnings growth. Financing introduces credit exposure, but the recent operating results give us a good reason to remain interested despite the monthly pullback.

MBRF combines beef operations with BRF’s poultry, pork and processed-food businesses. Its brands include Sadia and Perdigão, and its operations reach markets around the world. The combination creates opportunities to share distribution, purchasing and logistics across a much broader food portfolio.

The shares fell 3.75% over the month and are down 15.62% this year. Second-quarter revenue increased 4.9%, adjusted EBITDA rose 5.4%, and sales volume reached a second-quarter record. Management reported merger savings and a 13% reduction in consolidated administrative expenses.

The operating improvements are tangible. Commercial integration expanded beef distribution into more than 20,000 additional Brazilian sales locations. The company also emphasized better working-capital management and cash conversion.

On Oct. 2, subsidiary NBM terminated its tender offer for approximately $467.5 million of notes due in 2029 because the financing condition was not satisfied. No notes were purchased under the offer. That leaves refinancing and capital allocation on our watch list.

Using our figures of 0.13 times sales and 12 times free cash flow, the shares offer a low sales valuation and an implied free cash flow yield of approximately 8.3%. We are paying just 13 cents for each dollar of annual revenue, with cash generation providing a second measure of value.

That combination supports the undervaluation case if free cash flow proves sustainable. Debt and processing margins remain important, but successful integration gives this investment a source of potential improvement beyond changes in meat prices.

KVH supplies maritime connectivity services and equipment, helping vessels maintain communications at sea. Its business increasingly includes services using low Earth orbit networks such as Starlink and OneWeb, alongside its existing satellite offerings.

The stock declined 4.06% for the month and is up 1.72% this year. Second-quarter revenue increased 27% to $33.7 million. Service revenue rose 29%, and airtime revenue increased 31%, driven by more Starlink and OneWeb subscribers.

The transition is visible in the revenue mix. Low Earth orbit services represented more than 55% of airtime sales, compared with less than 32% a year earlier. Adjusted EBITDA increased to $3 million from $2.7 million, although net income declined to approximately $200,000 from $900,000.

At 1.09 times tangible book, the shares trade close to their reported tangible asset base. The opportunity is for growing recurring services to build a more profitable business. Revenue growth is welcome, but we also need evidence that KVH retains attractive margins as its reliance on third-party networks increases.

Cresud owns and operates agricultural assets in Latin America and has significant exposure to Argentine commercial real estate through IRSA. Farmland development, crops, livestock and urban property interests create a broad asset portfolio, with substantial exposure to Argentina’s economy and currency.

The shares declined 15.89% for the month and are down 15.36% this year. Fiscal 2026 results showed higher consolidated operating income and higher earnings attributable to Cresud shareholders, although inflation accounting and property valuations complicate comparisons.

October brought a major capital-return decision. Shareholders approved a distribution of approximately 116 billion Argentine pesos, split between cash and IRSA shares. Approximately 70% of the declared value consists of cash, with the remainder represented by IRSA shares. The company subsequently published payment terms, including separate procedures for ADS holders.

That distribution matters when we evaluate shareholder returns. We should not assume the spreadsheet’s 5.86% yield captures the newly approved package, or that the monthly decline was caused by it.

At 0.88 times tangible book, Cresud remains an asset-discount investment with several potential ways to realize value. The distribution is a concrete example of management moving assets and cash into shareholders’ hands.

Canadian Solar manufactures solar equipment and battery storage systems. Through Recurrent Energy, it also develops, owns and sells solar and storage projects. That gives it exposure to both equipment demand and the economics of building and financing power assets.

The stock fell 17.22% over the month and is down 62.39% this year. Second-quarter revenue declined 29% to $1.2 billion, and the company reported a $77 million loss. Operating activities consumed $181 million of cash, while total debt, including financing liabilities, reached $7.1 billion. Part of that debt is nonrecourse project financing.

There are promising operations within those difficult consolidated results. Energy storage shipments reached 3.7 gigawatt-hours, and e-STORAGE reported a $3.5 billion contracted backlog. The company is also expanding its U.S. manufacturing operations.

On Oct. 6, e-STORAGE announced a contract to supply and commission a 100-megawatt, 200-megawatt-hour battery system for OX2 in Australia, backed by a 20-year service agreement. Shipments are scheduled to begin in the third quarter of 2027, so this adds future business rather than immediate earnings.

At 0.22 times tangible book, the potential upside from stabilization is substantial. The priority is proving that orders, manufacturing investment and project assets can generate cash for common shareholders. Strong industry demand helps, but cash conversion and financing discipline will determine how much value we ultimately receive.

There is plenty to like across this portfolio. Several companies are reporting better earnings, others are returning capital, and important discounts remain even after substantial share-price advances.

Our approach remains rooted in the businesses. We want financial strength, an attractive purchase price, improving earnings where possible and enough patience to let management’s work show up in shareholder value. The strongest results this month show how rewarding that combination can become.

You can find the full Small-Cap Deep Value portfolio right here.