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Why does Towle & Co. emphasize a company's balance sheet?
A strong balance sheet gives a company strength and financial flexibility when faced with a temporary problem. Confirmation of balance sheet strength goes a long way toward moderating downside risk.

Why does Towle & Co. invest in small-cap stocks?
Everything we do is a function of value. Throughout our long history we have found the greatest value in small-cap stocks. In the short term, the stock market can be very inefficient with the widest discrepancies in value occurring among smaller capitalization companies. Small capitalization stocks are more sensitive to a loss of confidence and market volatility providing opportunity to capture value on a continuing basis.

What's the usual catalyst that drives your stocks to the upside?
A number of factors can drive stock prices upward. As bull markets always follow bear markets, a market upturn can dramatically increase prices as investor confidence is restored. Similarly, improved investment perception of a particular industry can increase valuation. However, the primary driver of upward pricing is earnings improvement. Ideally, a company that meets our security selection requirements should be purchased at the inflection point of earnings expansion.

Many of Towle & Co.'s stocks are from old-line industries. What do you find appealing about these companies?
Basic manufacturing, transportation, consumer products, and financial service companies are easier to understand than the high growth, technology-driven firms. They can trade at deep discounts to their private market transaction value and at deep value multiples to sales, cash flow, book value, and earnings power. Seasoned management and heavy insider ownership are other compelling features of many old-line companies.

When a stock's valuation becomes attractive, do you buy it as it is falling or wait for it to stabilize?
We cannot predict where or when a stock bottoms. As it can be time-consuming to build a full portfolio position, Towle & Co. will not hesitate to buy when a stock hits our initial purchase price target. If the market drives the stock lower, we may use the opportunity to buy more.