Finding Bargain Stocks In AI's Shadow

Core Viewpoint - Hotchkis & Wiley, a $35 billion asset management firm, is maintaining its value investing philosophy by focusing on undervalued companies overlooked in the AI-driven market, with manager David Green leading this contrarian approach [1][2]. Company Overview - Hotchkis & Wiley was founded in 1980 and has a long-standing value investing philosophy that emphasizes buying good companies at low valuations [2][3]. - The firm has grown its assets under management from $4 billion at the time of its buyout in 2001 to approximately $35 billion today [3]. Investment Strategy - The Hotchkis & Wiley Value Opportunities Fund, with $767 million in assets, seeks mispriced companies that are not benefiting from the AI boom, such as Workday, Ericsson, and U-Haul [1][2]. - The fund's strategy includes holding 40 to 70 positions, with a focus on companies with strong balance sheets and competitive advantages [4][5]. - The fund has outperformed its benchmark, the Russell 3000 Value Index, with an annualized return of 12.5% since inception, compared to the S&P 500's 9.6% [4]. Key Holdings - Workday, the largest holding at 8% of the portfolio, is viewed as undervalued despite market concerns about its exposure to AI competition [8][9]. - Ericsson, another significant holding, is trading at a low valuation relative to its market position and growth potential in mobile data consumption [10]. - U-Haul, with a market cap of $9 billion, is seen as a classic value play due to its dominant market share and expansion into self-storage, despite current earnings pressures [10]. Market Outlook - Green anticipates modest returns in the broader market, contrasting with the booming AI sector, and believes that disciplined value investors will be well-positioned when market conditions broaden [6][11]. - While acknowledging the transformative potential of AI, Green has not yet observed sufficient returns on investment to justify current spending levels [11].