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“We’ve been fishing in this pond of small and mid-cap value
for 38 years now,” says John W. Rogers, Jr.

‘Value and Small Stocks Will Lead

John W. Rogers, Jr., chairman, co-chief executive officer and chief investment officer of Ariel Investments, discusses the value of stocks with Anne Kates Smith, Kiplinger's Personal Finance.

Q: You’re a celebrated value investor. How do you define value?

A: We think of it as buying stocks that are selling at a discount to their private-market value. For us, an undervalued security is selling at more than a 40% discount to what we think the value of the company is.

Q: Where can investors find value in the market today?

A: Our favorite over the past several years has been fee-generating financial services companies. Lazard (LAZ) is the largest position in Ariel Fund. Lazard gets paid for advice on mergers and acquisitions and financial transactions. It also has a large global investment management division that’s extraordinarily successful and a business that helps companies through restructuring. A second favorite of ours is KKR & Co. (KKR), one of the preeminent private equity firms in the world.

Q: What have you been buying recently?

A: As the economic recovery strengthens, we have some names that are primed to benefit from pent-up demand from the COVID crisis. Our favorite there is Madison Square Garden Entertainment (MSGE). We think that as inflation comes back, real estate values will come back. And of course, as the economy comes back and COVID ends, people will be back in the Garden watching concerts and games.

Another favorite of ours has been doing well throughout the COVID crisis but will also do well in the recovery: Mattel (MAT). It has iconic brands we all know – Hot Wheels, Barbie, American Girl. Kids have been stuck at home, needing things to play with, and the company has learned through this period how to benefit by selling their products over the internet.

Q: Small-company stocks have had a good run. Do you think there’s more to come?

A: I do. We’ve been fishing in this pond of small and mid-cap value for 38 years now. Research analysts have neglected a lot of these smaller companies, especially if they are not part of the major indexes – we talk about them being “orphaned” companies.

There are a lot of opportunities to find bargains in these smaller, undervalued parts of the marketplace. One of our favorites is Kennametal (KMT), which makes metal-cutting tools. We think it’ll be a beneficiary of infrastructure spending.

Small media companies have also been neglected. Our favorite is Tegna (TGNA). It owns television stations throughout the United States. It’s dependent on advertising, so it’s kind of a perfect world right now as more people are trying to promote their products as the economy comes back.

Q: What risks do you see building in the market today?

A: Today, everywhere I go, people want to talk about cryptocurrencies. Be careful about chasing the “hot dot” of the moment. Remember, the best way to invest is to think long term and to invest in great businesses you can own for a long time.

Editor’s Note: Anne Kates Smith is executive editor of Kiplinger’s Personal Finance magazine,

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