MW Voss Capital thinks the market is a 'perpetual paradox machine'. Here are the stocks the fund manager owns.

By Jamie Chisholm

Buying undervalued small-cap stocks that may attract bidders has worked this year

"The market is a perpetual paradox machine where one does not go to fulfill the need for clarity and cohesion."

That's a caustic top line from the latest update from Voss Capital, a Houston-based fund that is clearly critical of the stock market's perceived inefficiency right now.

But as an active manager with $1.2 billion in assets at the end of 2024, Voss recognizes that such an environment throws up tasty opportunities.

The market is displaying "a continuing oscillation between rationalizations for extreme moves," Voss said in its update. The cheapest quartile of stocks, Voss noted, is cheaper now than it was in 2014 and the most expensive quartile is much more expensive, partly a function of capital flooding out of active and into passive investments, which now account for around 54% of total U.S. equity assets.

And the influx of retail investors has contributed to a market imbalance where "there is too much capital chasing too few assets," Voss said. "In this environment, a new breed of nihilistic traders has spawned over 40 million intrinsically worthless cryptocurrencies, all while deriding rigorous fundamental analysis and detailed valuation."

Overall, divergences between the valuations of similar assets have often reached proportions that are hard to fathom and can't easily be explained by anything empirical, according to Voss.

However, "the best long/short equity opportunities are born from these extreme contradictions that we find ongoing today, thus there is a superb stock picking backdrop," Voss said in the summary to investors dated Feb. 19.

That observation encouraged Voss to buy shares of small-cap companies it thought were badly undervalued and would thus attract predators as mergers and acquisitions activity picked up.

It has led to success already this year, with SolarWinds $(SWI)$, the software group in which Voss says it was the biggest outside active shareholder; Converge Technology Solutions (CA:CTS), a Canadian tech services group; and Playa Hotels & Resorts $(PLYA)$, a resort operator, all attracting bids.

Voss says it will be looking out for similar opportunities as the year progresses, but in the meantime it updated its reasoning on a few eclectic holdings.

Voss remains long Euronet Worldwide $(EEFT)$, the electronic payment and processing company whose stock has failed to make much headway of late on concerns that lower U.S. immigration will impact the money-transfer business and amid "a general apathy in the payments space."

Voss thinks these fears are overblown "and their growth businesses [payment technology] seem to be building enough momentum to change the narrative (and valuation multiples) on the company from a 'secular decliner' [ATM operations] to more of a leading edge fintech company."

Voss is also invested in German luxury carmaker Mercedes-Benz (XE:MBG). "In a base case scenario valuing the company at 6.8x industrial free cash flow and giving them credit for excess cash and non-operating investments (equal to around EUR42 billion when including its cash balance, F1 stake at a 25% discount to Forbes' estimated value, and EUR10.8 billion for their Daimler Truck stake), the stock has about 66% upside," said Voss.

Japanese vehicle maker Subaru (JP:7270) is similarly undervalued, and its shares have 60% upside, Voss reckoned.

Finally, there is Amentum $(AMTM)$, which Voss described as a "newly formed, under-covered government services leader trading at an unwarranted 30%-plus discount to trading peers due to spin-off dynamics and near-term selling pressure."

The stock has been whipped around on peers' results and headlines about Elon Musk's federal budget-cutting project known as DOGE, but Voss said it is ignoring its own strong fundamentals after Amentum reported earnings and is cheap on a relative and absolute basis at around 10 times free cash flow. The fund manager sees an 80% upside for the stock to $34.

"The macroeconomic news flow at the start of 2025 has been viscous in its density, making it easy to lose sight of an optimal, bottom-up investment approach," Voss summarized. "To cut through the noise, we remain focused on identifying idiosyncratic, value oriented special situations, building a portfolio designed to continue generating uncorrelated alpha amid uncertainty."

-Jamie Chisholm

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February 24, 2025 10:40 ET (15:40 GMT)

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