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Small-Cap Guru Chuck Royce Makes 5 Trades: LECO, SCHL, DGII, FSIN, KONA
Posted by: Dianne Tordillo (IP Logged)
Date: November 5, 2012 05:07PM
Royce & Associates founder, Chuck Royce, has reported increasing his shares of two stocks and reducing his shares of three stocks as of Oct. 31.
Legendary for keeping small-cap businesses at the core of his funds, Royce maintains more than 1400 stocks in his portfolio, worth a total equity value of $30.99 billion.
The following is an excerpt from Royce & Associates’ investment discipline posted on its website, explaining the unique strategy behind its diverse funds: “Our approach emphasizes paying close attention to risk and maintaining the same discipline, regardless of market movements and trends. The price we pay for a security must be significantly below our appraisal of its current worth. This requires a thorough analysis of the financial and business dynamics of an enterprise, as though we were purchasing the entire company.”
View Chuck Royce’s Latest Stock Picks here.
Lincoln Electric Holdings Inc. (LECO)
As the largest among the five small-cap companies in which he made trades as of the start of the fourth quarter, Lincoln Electric Holdings Inc. (LECO) has a market cap of $3.26 billion and an enterprise value of $2.95 billion.
Adding 5.66 percent to his current holding, Royce now has almost 8.4 million shares of Lincoln Electric, boosting his ownership to 10.1 percent, according to a 13G SEC filing. Royce only had 7.9 million reported in the second quarter of this year.
“[Lincoln] delivered excellent operating results this quarter,” Lincoln chairman and CEO, John Stropki said in a press release. “We expanded margins significantly, drove our return on invested capital almost 19% and generated strong operating cash flows which we will continue to deploy to increase shareholder value.”
These growths included an 8.4 percent increase in sales and a 16.6 percent increase in net income.
The company also paid shareholders $42.5 million in dividends and repurchased $60.2 million, or 1,341,984 of its common shares during the period, as well as invested $52.9 million in acquisitions.
Lincoln currently trades at $44.30, and is almost up 3% for the day. Industrials currently make up the largest sector in Royce’s portfolio.
Scholastic Corp. (SCHL)
After adding 17.78 percent to his current shareholding, Royce, who is 10.25 percent owner of Scholastic Corp. (SCHL), has about 3.1 million shares of the company.
Scholastic Corp. is a media company that publishes various academic material for children. It has a market cap of $1.04 billion and an enterprise value of $995.7 million.
The company’s fiscal year ended May 31, in which it reported a 24 percent increase in revenue, an earnings per diluted share of $3.41 compared to only $1.34 in the prior year, and a free cash flow that exceeded its net income, totaling $147.6 million.
The release of trilogy "The Hunger Games" by author Suzanne Collins, children e-reading app and e-book system Storia, and reading software, READ 180, all contributed to the company’s growth for 2012.
Chairman and CEO, Richard Robinson, said in a press release that the goal for Scholastic’s fiscal 2013 is to “sustain last year’s momentum.”
Scholastic currently trades at $33.30 and is labeled with two Good Signs by GuruFocus, indicating a healthy Piortroski F-Score and an expanding operating margin.
Digi International (DGII)
Now 5.41 percent owner of Digi International (DGII), Royce reduced his shareholding of the company by 38.8 percent on Oct. 31. This brings his shareholding down to 1.4 million shares.
Minnesota-based Digi is a provider of wireless products and uses a cloud computing platform to execute its services. It currently sells at $9.41 per share, with a market cap of $241.6 million and an enterprise value of $133.11 million.
The release of its fourth quarter fiscal report on Nov. 1 revealed a decrease in revenue by 8.9 percent, a slight decrease in net income from $2.8 million down to $2.5 million (year over year) and a decrease in gross profit by 9.8 percent.
Recently, Digi announced its acquisition of Etherios Inc., a cloud computing services provider and creator of machine-to-machine (M2M) asset monitoring and service management product, The Social Machine.
For the 2013 fiscal year, Digi projects a revenue between $198 million and $220 million. The technology sector makes up 10.2 percent of Royce’s stock portfolio.
Fushi Copperweld Inc. (FSIN)
Royce reduced his shareholding of copper wire manufacturer Fushi Copperweld Inc. (FSIN) by 75.38 percent. The number of shares he now owns is a little over 100,000 shares.
Fushi Copperweld has a market cap of $355.3 million and an enterprise value of $163.44 million. It has a P/E ratio (ttm) of 13.2, a P/B ratio of 0.9 and a P/S ratio of 1.2
In its latest quarterly report covering Fushi’s second quarter, revenues, gross profits, income from operations and net income all underwent decreases, which according to a fiscal press release, was actually in-line with the company’s expectations. Fushi Co-CEO, Joe Longever noted that the unstable global economy contributed to the results.
“While the telecom markets in China and U.S. remained challenging, we saw improved sales in our utility and transportation product lines in North America driven by higher domestic and international demand, which drove strong volume and profitability growth at our Fayetteville facility,” he said. “In Europe, the ramp-up of operations at our new facility in Liege continues, and the benefits of being closer to our customers and decreased delivery times are becoming more tangible, as customer orders for bimetallic wire in Western Europe, the Middle East, Africa and emerging Asian markets accelerate.”
Fushi’s price value in the market has significantly dropped in the course of five years.
FSIN data by GuruFocus.com
Royce’s ownership of the company equals 0.26 percent. Fushi makes up the 33.3 percent of the industrial sector, represented in Royce’s portfolio.
Kona Grill Inc. (KONA)
With a total ownership of .52 percent, Royce reduced 87.7 percent of his shares of sushi restaurant chain Kona Grill (KONA).
Despite a not-too-significant change in restaurant sales for the quarter, its profit margin increased by 18.5 percent and net income increased by 67 percent, as reported in its third quarter financial results released today.
"For the remainder of 2012, we will remain focused on providing innovative food and quality service that differentiates the Kona Grill brand,” Kona president and CEO Berke Bakay said in the chain’s fiscal release. “We continue to work diligently on our real estate pipeline and are currently evaluating several prospective locations. We will update our target for new restaurant openings once leases are executed. We remain confident in our go-forward strategy."
Royce currently holds more than 45,000 shares of Kona. The company is currently trading at $8.98 per share, with a market cap of $78.4 million and an enterprise value of $70.36 million. The consumer sectors in Royce’s portfolio make up about 20 percent of his holdings.
To read more about Royce & Associates, view GuruFocus’ Archives of articles.
Guru Discussed: Chuck Royce: Current Portfolio, Stock Picks
Stocks Discussed: LECO, SCHL, DGII, FSIN, KONA,