From spin-off structures to Japan’s governance reform, the veteran investor is targeting undervalued industrials while sidestepping the AI frenzy.

Alex Roepers is accustomed to market peaks and troughs. The seasoned investor has been at the helm of Atlantic Investments for 40 years, leading the firm's higher-conviction investment strategy, identifying undervalued mid-cap companies across the US, Europe, and Japan. Reflecting on what has changed during his four decades in investing, Roepers sees the same investment fundamentals applying now as they did then: “The human element stays the same. Emotions are always there, and trends are always there. My strategy has remained intact, and I have doubled down on the investment universe that I try to exploit.”

In that regard, Atlantic focuses on mid-cap industrial products and services companies, staying away from areas that are difficult to analyse or have idiosyncratic risks that don't align with concentrated investing. At this current moment, Roepers is keen to stress a clear and level head when assessing investment decisions, remaining skeptical of the over-exuberance towards the AI trade. “ I think the excitement is completely overrated. People have forgotten that around the turn of 1999 to 2000, there were fears that computers would stop working because they couldn't handle the date rolling over to 00. Of course nothing happened.”

To avoid direct exposure, Roepers focuses much of his investments on the picks and shovels of the AI trade. For example, the firm invests in Kirby, the largest owner of inland barges which help transport goods across the US. The company has high inventory levels and is fully leased, meaning there is high upside for the stock to benefit from being adjacent to the data center buildout. Roepers adds, "I've known the business for 30 years. It came onto our radar last year at around $80 a share. Today it's close to $140. And there is a high upside with the current earnings trajectory.” A demonstration that looking beyond the AI headlines and finding beneficiaries can have significant upside.

Atlantic Investments also seeks to extract value and identify opportunities from spin-off structures that occur. The firm looks at companies that engage constructively with management and shareholders, creating a path to "accelerate value”, Roepers notes.“These are often assembled through acquisitions and grown through further bolt-on deals until they become unwieldy. Those companies often trade at conglomerate discounts.” Moreover, for value investors, identifying investment opportunities is about separating the wheat from the chaff, as investments can be passed over during a laborious analysis process.

One key region that has been a fertile hunting ground for the firm is Japan. The country possesses an investable universe of over 200 companies and looks at businesses with market caps in the $2bn to $20bn range. Roepers believes that Japan has been conducive to activist investing through the government initiatives led by Shinzo Abe, as opposed to the West, where corporate change is pushed through by the broader capitalist system. “For close to two decades there has been a real focus on public companies and government pressure to improve returns on equity and make changes.” There has also been far greater involvement from private equity, which adds pressure on Japanese management teams to act rather than sit on large balance sheets or pursue empire-building acquisitions that stifle opportunity.

Watch the full interview here.