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Opus News & Insights

Independent Thinking Garners a Win with Foot Locker
Tuesday, October 11, 2016

Though we pay close attention to sector themes, our stock selection is still driven by the rigorous, objective analysis of individual securities. A perfect example of this would be the recent purchase of Foot Locker (FL) in our Small Cap Value Plus strategy.

Analyst Robby Kuhnhein’s research presented a compelling case for the stock that highlighted how the company’s performance was differentiated from the often severe struggles of its mall-based peers.

A key element of the bull case was the firm’s strong inventory management. The struggles of specialty retailers have been well documented, with many of them running into issues with their inventory. Excess inventories have led to increases in promotions and subsequent declines in margins. This has not been the case for Foot Locker. As the below chart shows, they have been able to increase their sales steadily while increasing inventories at a lower rate.

small cap value plus strategy

The below chart shows their inventory turns, which have seen a steady upward progression since 2011.

small cap value plus strategy

In this case, Robby’s sound analysis and contrarian viewpoint allowed us to buy Foot Locker in mid-July at deeply depressed prices – just ahead of a 20% rally in the stock’s share price. We believe that it is this type of independent thinking that put our SCVP strategy in the top percentile against our eVestment peer group (three-year performance), and will continue to make the difference for our investors going forward.

Disclaimer:

Mr. Stewart is a Portfolio Manager for Opus Capital Management's Small Cap Value Plus strategy. The Small Cap Value Plus strategy provides total return and income for investors by focusing on the attractive universe of small cap dividend payers. Historically, these companies have outperformed the broad small cap universe and provided superior downside protection. Opus Capital Management reserves the right to make investment decisions regarding any security without further notification except where such notification is required by law.

This security is identified and described to illustrate our investment process, and does not represent a recommendation to buy or sell the security mentioned above.

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