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Top Small-Cap Picks of Expert Investor Peter Schliemann

Rutabaga Capital Management LLC is a Boston-based hedge fund firm established by Peter Schliemann in January 1999. Schliemann is widely-known for his affinity for small, less-followed companies that have relatively strong balance sheets and small margins that declined for reasons he can potentially handle. Rutabaga Capital Management predominantly invests in micro-cap companies with capitalizations of less than $500 million and small-cap companies with capitalizations of less than $1.5 billion. Peter Schliemann, the current President, Managing Principal and Portfolio Manager at Rutabaga Capital Management, had worked at another reputable Boston-based investment management firm, David L. Babson & Co., prior to launching his own hedge fund. Considering the fact that Schliemann is a Harvard Business School alumni, it is no surprise that the small-cap expert has managed to be quite successful throughout his career. Rutabaga Capital manages a public equity portfolio valued at $1.01 billion and mainly invests in the following sectors: capital goods, services, technology and basic materials. In the following article, we will consider Peter Schliemann’s top small-cap picks, which are Headwaters Incorporated (NYSE:HW), Harsco Corporation (NYSE:HSC) and Globe Specialty Metals Inc. (NASDAQ:GSM).


AVA Bitter/

AVA Bitter/

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activity. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds partly underperformed because they aren’t 100% long. Hedge funds’ fees are also very large compared to the returns generated, which reduces the net returns delivered to investors. We uncovered through extensive research that historically, hedge funds’ long positions in certain stocks actually outperformed the market greatly, and it has held true to this day. For instance, the 15 most popular small-cap stocks among funds has beaten the S&P 500 Index by more than 84 percentage points since the end of August 2012. These stocks returned a cumulative of 142% vs. less than 58% for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying, particularly in the small-cap sector, rather than what their net returns are.

Peter Schliemann
Peter Schliemann
Rutabaga Capital Management

Let’s start off by looking into Peter Schliemann’s holding in Headwaters Incorporated (NYSE:HW). Rutabaga Capital Management reported selling 381,496 shares of Headwaters Incorporated (NYSE:HW), decreasing its overall position to 1.66 million shares valued at $30.46 million as of March 31. Headwaters’ stock is currently trading at $19.84, achieving a gain of 32% since the beginning of the current year. In spite of achieving this relatively substantial increase, the stock might still represent a good pick, as the housing market is currently experiencing stronger growth than it has in many years. At the same time, despite reporting a loss of $25.5 million for its fiscal second quarter of 2015, Headwaters Incorporated managed to beat Wall Street’s expectations. The company reported strong revenues as well, posting a figure of $179.7 million for the quarter. Within our database of hedge funds, Jeffrey Gates‘ Gates Capital Management represents the largest shareholder of Headwaters Incorporated (NYSE:HW), holding 4.33 million shares.

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