Long Cast Advisers is an independent-registered investment adviser that specializes in long-term investments in small-cap companies. The firm takes a unique approach to investing, valuing individual companies based on their expected cash flows. Despite a challenging 4Q23 quarter, with cumulative returns at -8%, the firm has demonstrated strong performance throughout the year, with a cumulative net return of +10%. Since its inception in November 2015, Long Cast Advisers has achieved an impressive cumulative net return of 165% net of fees. In terms of specific investments, MAMA emerged as the top performer in the last quarter, while MTRX and CCRD faced setbacks. The top five holdings at the end of the quarter were MTRX, CCRD, QRHC, PESI, and RSSS. Each of these holdings presents unique opportunities for growth and profitability. The investment firm believes that learning, humility, and patience are key components to achieving success in the long-term investment process.

Long Cast Advisers

Overview

Long Cast Advisers is an independent-registered investment adviser that specializes in long-term investing in small-cap companies. With a focus on valuing individual companies based on their expected cash flows, the firm aims to provide investors with sustainable and profitable investment opportunities.

Investment Focus

The primary focus of Long Cast Advisers is small-cap companies. These are companies with a relatively small market capitalization, typically ranging from $300 million to $2 billion. Investing in small-cap companies offers several benefits, including the potential for higher returns and the opportunity to identify undiscovered or undervalued stocks.

Cumulative Returns

The cumulative returns for the 4Q23 quarter were -8%, which was below the performance of the predominant indices. However, it is important to note that investment performance can vary and may not always align with broader market trends. Despite the quarter’s performance, the cumulative net returns for the year were +10%, highlighting the firm’s ability to generate positive returns over the long term.

Since its inception in November 2015, Long Cast Advisers has achieved a cumulative net return of 165% net of fees. This impressive performance demonstrates the firm’s dedication to delivering consistent and profitable outcomes for its investors.

Investing in Small-Cap Companies

Definition of Small-Cap Companies

Small-cap companies are characterized by their relatively modest market capitalization. This refers to the total value of a company’s outstanding shares. Small-cap companies often have significant growth potential and are considered more volatile than their large-cap counterparts. However, they can also present unique investment opportunities due to their potential for rapid expansion and undiscovered value.

Benefits of Investing in Small-Cap Companies

Investing in small-cap companies offers several advantages. Firstly, these companies have the potential for higher returns compared to larger, more established companies. This is because smaller companies often have greater room for growth and have the opportunity to generate significant shareholder value.

Secondly, investing in small-cap companies provides the opportunity to identify undiscovered or undervalued stocks. As these companies are often underfollowed by analysts and institutional investors, diligent research and analysis can uncover hidden gems that may outperform the broader market.

Lastly, small-cap companies tend to be more nimble and adaptable. This agility allows them to quickly respond to market changes and capitalize on new opportunities, enabling investors to benefit from their innovative and proactive nature.

Investment Approach

Long Cast Advisers’ investment approach is centered on valuing individual companies based on their expected cash flows. By thoroughly analyzing each company’s financials, industry dynamics, and competitive landscape, the firm aims to determine the intrinsic value of the company and make informed investment decisions.

The investment team at Long Cast Advisers conducts extensive research to identify companies with strong growth potential and competitive advantages. They seek to invest in companies with sustainable business models, capable management teams, and attractive valuations. This disciplined approach helps mitigate risk and positions the firm for long-term success.

Performance Review

4Q23 Performance

During the 4Q23 quarter, Long Cast Advisers experienced a cumulative return of -8%. While this may have underperformed the predominant indices, it is important to note that short-term performance can be influenced by various factors that may not reflect the long-term potential of the portfolio. Long Cast Advisers remains committed to its investment philosophy and aims to deliver consistent and sustainable returns over time.

Yearly Performance

Despite the challenging quarter, Long Cast Advisers achieved a cumulative net return of +10% for the year. This solid performance underscores the firm’s ability to navigate market fluctuations and generate positive returns for its investors. By focusing on long-term investing and conducting thorough research, Long Cast Advisers aims to provide stable and profitable investment opportunities for its clients.

Top Performers and Detractors

MAMA was the top performer in the quarter, showcasing the firm’s ability to identify companies with strong growth potential. On the other hand, MTRX and CCRD were significant detractors during the period, highlighting the risks associated with investing in small-cap companies. It is important to note that the performance of individual stocks can vary, and diversification across a portfolio can help mitigate risks associated with any single investment.

Quarterly Holdings

Top Five Holdings at Quarter End

At the end of the quarter, Long Cast Advisers had the following top five holdings:

1. MTRX
2. CCRD
3. QRHC
4. PESI
5. RSSS

These holdings represent a diverse portfolio, allowing the firm to capture opportunities across various sectors and industries.

Explanation of Each Holding

MTRX

MTRX is expected to quickly return to profitability and has a historically high backlog. The firm’s ongoing investment in research and development, as well as its focus on customer satisfaction, positions it for future growth. With its strong market presence, MTRX presents an attractive investment opportunity.

CCRD

CCRD’s revenues, excluding Goldman, annualize to $20 million per year. The company is actively making necessary adjustments to diversify its client base, reducing its reliance on any single customer. This strategic move will help mitigate risks and create a more sustainable revenue stream.

QRHC

QRHC is expected to refinance its debt, which will result in lower interest expenses and positively impact the bottom line. This move demonstrates the management team’s commitment to optimizing the company’s financial position and maximizing shareholder value.

PESI

PESI is likely to secure the grouting project, which could contribute to earnings. The company’s strong industry relationships and expertise make it well-positioned to win new contracts and expand its market share. This growth potential makes PESI an attractive investment opportunity.

RSSS

RSSS completed its acquisition strategy and added over $5 million in recurring revenues. This expansion strengthens the company’s competitive position and improves its revenue diversification. With a solid growth trajectory, RSSS presents an opportunity for long-term value creation.

Analysis of Top Holdings

MTRX

MTRX is expected to quickly return to profitability due to its historically high backlog. The company’s focus on research and development, combined with its commitment to customer satisfaction, positions it for future growth. MTRX is well-positioned to capitalize on industry trends and deliver long-term value for investors.

CCRD

CCRD is making necessary adjustments to diversify its client base and reduce its reliance on any single customer. By targeting new verticals and expanding its offerings, CCRD aims to create a more sustainable revenue stream. This strategic focus demonstrates the company’s commitment to long-term success and enhances its investment appeal.

QRHC

QRHC is expected to refinance its debt, which will result in lower interest expenses and contribute positively to the company’s bottom line. By optimizing its capital structure, QRHC aims to improve profitability and enhance shareholder value. This proactive approach to financial management makes QRHC an attractive investment opportunity.

PESI

PESI is likely to secure the grouting project, which has the potential to significantly contribute to the company’s earnings. With its strong industry relationships and expertise, PESI is well-positioned to win new contracts and expand its market share. This growth potential makes PESI an attractive investment opportunity for investors seeking long-term value.

RSSS

RSSS completed its acquisition strategy and added over $5 million in recurring revenues. This expansion strengthens the company’s competitive position and improves its revenue diversification. With a solid growth trajectory and an efficient integration process, RSSS presents an opportunity for sustained value creation.

Expected Financial Outlook

MTRX

Based on its historically high backlog and commitment to customer satisfaction, MTRX is expected to deliver strong financial results in the upcoming quarters. The company’s ongoing investment in research and development and its ability to adapt to industry trends positions it for sustained growth and improved profitability.

CCRD

By diversifying its client base and expanding its offerings, CCRD is well-positioned to improve its financial performance. The company’s strategic focus and dedication to creating a sustainable revenue stream demonstrate its commitment to long-term success.

QRHC

Following its debt refinancing, QRHC is expected to experience decreased interest expenses, positively impacting its bottom line. The company’s proactive approach to financial management positions it for improved profitability and enhanced shareholder value.

PESI

With the potential for securing the grouting project, PESI is expected to experience increased earnings. The company’s strong industry relationships and expertise make it well-positioned to capitalize on growth opportunities and generate sustainable financial returns.

RSSS

With its completed acquisition strategy and added recurring revenues, RSSS is poised for sustained financial growth. The company’s efforts to strengthen its competitive position and improve revenue diversification position it for enhanced profitability and long-term value creation.

Importance of Learning and Humility

Continuous Learning

Continuous learning is a vital aspect of the investment process. Long Cast Advisers recognizes the importance of staying updated on market trends, industry dynamics, and emerging investment opportunities. By continuously expanding their knowledge and skill set, investment professionals can make more informed decisions and adapt to changing market conditions.

Humility in Investing

Humility is crucial when it comes to investing. Recognizing that no investor can accurately predict the future or control market outcomes is essential. By approaching investing with humility, investors can remain open to alternative perspectives, acknowledge their limitations, and make more prudent decisions based on sound analysis and research.

Patience for Long-Term Success

Patience is a key attribute for long-term investment success. Recognizing that investment returns may not materialize immediately and that short-term fluctuations are often temporary is important. By maintaining a long-term perspective and resisting the temptation to make impulsive investment decisions, investors can position themselves for sustainable and profitable outcomes.

In conclusion, Long Cast Advisers is an independent-registered investment adviser that specializes in long-term investing in small-cap companies. Despite the challenging 4Q23 performance, the firm has demonstrated solid cumulative returns since its inception, emphasizing its ability to generate consistent and sustainable returns over the long term. By focusing on small-cap companies and employing a thorough investment approach, Long Cast Advisers aims to identify attractive investment opportunities and deliver stable financial outcomes for its investors. Continuous learning, humility, and patience are key values that underpin the firm’s investment philosophy, ensuring that the team remains diligent and focused on achieving long-term success.