Oil, media, finance: Five theme-based holdings from Royce Small-Cap Opportunity Fund

The managers of the Royce Small-Cap Opportunity Fund have highlighted five theme-based holdings in their portfolio. Like all strategies created by Wall Street legend Chuck Royce, the fund invests in small-cap stocks, but it focuses on those with clear catalysts for future earnings growth, such as new leadership, innovation, or changes in the business environment.

Shares of Flowco Holdings (market capitalization $1.4 billion) are expected to appreciate as the energy industry adopts the company’s technologies to optimize oil and gas production. Current adoption is less than 10%, but fund managers believe it will rise to 25% over the next several years. Flowco has two core technologies: one that provides high-pressure artificial lift for oil and gas wells, and another that captures methane released during fossil fuel extraction. The managers describe Flowco as a market leader in both areas, with potential for double-digit revenue growth and industry-leading EBITDA margins approaching 40%.

IAC (market cap $2.8 billion) is trading at a significant discount to its underlying assets, a gap that should narrow over time, according to the managers. The holding company owns a diverse mix of businesses, including People Inc., Care.com, Vivian Health (a job platform for medical professionals), and Ask Media Group, which operates Ask.com. In addition, IAC holds a 24% stake in MGM Resorts and about 32% of Turo, the car rental platform. The market is currently valuing only a portion of IAC’s portfolio (its MGM stake alone is worth roughly $2.3 billion), leaving the rest of its businesses essentially unpriced, the fund managers note.

NCR Atleos (market cap $2.9 billion), which operates both third-party and proprietary ATMs, represents a classic undervaluation case, the fund managers say. The company’s prospects are tied to a structural shift in consumer preferences, as ATMs take market share from traditional banks while offering a broader range of services. To capitalize, NCR Atleos is moving away from its legacy model of selling hardware, software, and services separately and shifting to an integrated “ATM as a service” (ATMaaS) platform. This transformation is expected to create a significant source of recurring, high-margin revenue over time, Royce expects.

Shares of Perella Weinberg Partners (market cap $1.9 billion), an advisory firm specializing in M&A, restructuring, and liability management, are positioned to benefit as business activity recovers, Royce believes. The company has $175 million in cash, no debt, and announced in August that it was diversifying its business by acquiring Devon Park Advisors, which advises high-net-worth individuals. These moves provide opportunities to accelerate earnings growth and support multiple expansion, as PWP currently trades at a discount to peers.

Two strategic decisions underpin the investment thesis for Resideo Technologies (market cap $6 billion), a supplier of thermostats and fire safety systems. First, the company reached an agreement with Honeywell to terminate a costly 2018 indemnification arrangement, linked to the company's spinoff from Honeywell, that required payments of up to $140 million annually through 2043. The settlement frees up capital to invest in growth. Second, Resideo plans to spin off its distribution arm as a public company and focus on product manufacturing. This should sharpen strategic priorities and unlock additional shareholder value, according to the Royce managers.

The AI translation of this story was reviewed by a human editor.