While many portfolio managers stay away from illiquid, unknown, micro-cap stocks, the managers of
"The companies that have a hidden value, a value that is not really recognized by market participants, tend to be small," Takehiko Serai, co-manager of Gabelli Japanese Value Partners, a long/short hedge fund, told Reuters. In particular, Serai said, he likes stocks that are undervalued but that generate strong cash flows and dominate their markets, however obscure. For instance, the fund owns shares in Japans leading hot water boiler manufacturer and in the maker of bearing balls.
"We like them because they are cash generative," Serai told Reuters. "Their respective market share is high and stable," and the potential for an acquirer to come along and boost the stocks value is likely, he said.
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