By Debbie Carlson
Investors have plenty to be worried about lately: escalating Middle East conflicts, inflation, and a weakening job market, not to mention that U.S. stock markets are still concentrated and expensive.
Bill and Will Nasgovitz, father and son co-managers of the $955 million Heartland Value fund, a small-cap value fund, acknowledge there's plenty of fear -- but also opportunities.
Recently, Heartland Value used the market volatility in the financial sector induced by the joint U.S.-Israel conflict with Iran to buy shares in the Wisconsin-based Associated Banc-Corp., which has $55 billion in assets and a market cap of $4 billion.
The stock trades around $25 and pays a 4% dividend. Heartland Value's intrinsic value target is $36, based on a 1.7 times multiple applied to 95% of its current tangible book value, which reflects a 5% discount for potential credit risk.
"That makes sense to us," says Bill Nasgovitz, who founded Heartland Value in 1984. The firm, which also runs two other funds, has a total of $2 billion in assets under management.
The mangers' investment philosophy is rooted in the classic Benjamin Graham value style. They have built 10 investing principles that Heartland Value uses as a blueprint to quiet the market noise, says Will Nasgovitz, who joined as co-manager in 2019. (In 2025, Michael Warecki and Jacob Westphal were also named as co-managers.)
There are five quantitative principles: Seek financially sound, cheap companies that have low ratios of price to earnings, cash flow, and book value. And there are five qualitative principles: Look for sound business strategies, catalysts for recognition, insider buying, positive earnings dynamics, and positive technical chart patterns.
The results speak for themselves. Heartland Value's 30.8% one-year return beats the Russell 2000 Value index's 25.4% gain and trounces its Morningstar small-cap value peer group's 17.9% one-year return, catapulting Heartland Value to the top 4% of peers.
Morningstar gives the no-load Heartland Value fund a silver medal and five stars. It charges a 1.06% annual fee, which the research firm considers average. The fund's 10-year annualized return is 11.1%, well above the index's 9.6% return and its peer group's 9.3% return. Morningstar also notes the fund takes below-average risk to realize those returns.
Heartland Value doesn't stray too far from benchmark sector or industry weightings but looks for the best opportunities for long-term wins within those sectors. The managers often start by combing for stocks with insider buying and positive technical-chart patterns, says Will Nasgovitz, which are signs a business is aligned between shareholders and managers and may be on an upswing.
They want companies to meet at least seven of their 10 principles, and they typically seek companies that are trading at below-market price/earnings multiples, usually 14 times or less on a 12-month trailing basis. But they're not looking for the proverbial cigar butts sometimes toxic to value investing.
"We're willing to take on income-statement risk, but we don't want to marry that with balance-sheet risk," Will Nasgovitz says.
Given the current market volatility, they're adding to existing positions and buying new names.
They've started adding to a longtime holding, Century Communities, a low-cost housing builder. Bill Nasgovitz says the $4 billion company is trading around 66% of its book value, and insiders own 13% of the stock. He also points out that it has never lost money.
The stock currently trades at just over $58, while the managers' intrinsic value estimate is $107, which is based on 1.2 times the current stated book value.
"We think there's easily $10 a share in earning power here," he says. "We think that makes a marvelous long-term investment."
In January the fund bought Choice Hotels International, which owns names such as Radisson, Comfort Inn, Quality Inn, and Sleep Inn & Suites, betting it is priced for a much weaker economic backdrop. It's trading around $97, and the managers' intrinsic value estimate is $170. That estimate reflects an expected 14.5 times enterprise value to estimated earnings before interest, tax, depreciation, and amortization, or Ebitda, for the next fiscal year. Insiders own 45% of the stock.
"It's rivaling what we saw during the pre-financial crisis," Will Nasgovitz says of Choice's valuation, adding that the company could benefit if people are less inclined to travel overseas.
Bill Nasgovitz, who has a 42-year record of following small-caps, says sometimes the fund buys names it previously owned, like water-delivery company Primo Brands, which they had sold in 2024. A recent merger stumbled, causing the share price to plunge. Heartland Value bought shares in the fourth quarter, spurred by insider buying. Primo currently trades around $21. The managers' intrinsic value target is $39, which is based on the average of 12.5 times Ebitda for the coming two fiscal years.
They are adding to Columbia Sportswear, which has seen sales fall from a Covid-induced bubble and has been hit by tariffs. It trades at around $58, while the managers' intrinsic value target is $110, based on 13 times Ebitda for the coming fiscal year. Bill Nasgovitz ticked off other reasons he thinks the company is resilient: It's profitable, has no debt and plenty of cash, and it pays a dividend.
If high oil prices persist, it could have ramifications for the economy, squeezing consumers and small businesses, and that may hamper small-caps, Will Nasgovitz says. Still, his outlook remains positive. He points to small businesses having navigated the oil price spike in 2022 from the Russia-Ukraine conflict, and there is the greater economic backdrop of a relaxed regulatory environment which can give small companies an outside benefit over bigger firms.
The duo believes the strength in small-caps is just beginning, noting valuations remain low despite last year's run-up. They also point to strong merger and acquisition activity, with 12 of their holdings having being acquired in 2025 and three already this year, suggesting strategic buyers see value in this area of the market.
"People are waking up to more of a common-sense approach to investing," Will Nasgovitz says. "Yes, we're looking for companies that are growing, but we want to pay a reasonable price for it."
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March 20, 2026 21:30 ET (01:30 GMT)
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