Chuck Royce (Trades, Portfolio)'s Royce Investment Partners recently disclosed that it has picked up a new stake in luxury carpet flooring manufacturer The Dixie Group Inc. (DXYN, Financial).
According to GuruFocus Real-Time Picks, a Premium feature, the guru's firm invested in 256,396 shares in the company on Nov. 30 after selling out of its previous holding in the second quarter of 2019. The new buy gives the stock a 0.01% weight in the equity portfolio and represents 1.62% of Dixie Group's total shares outstanding. On the day of the trade, shares of Dixie Group traded around $2.43.
Royce Investment Partners
Renamed from Royce & Associates at the end of 2019, Royce Investment Partners is the investment firm founded by Chuck Royce (Trades, Portfolio) in 1972. The firm specializes in small-cap companies, which it chooses through a bottom-up, risk-conscious approach. The portfolio managers focus on quality and deep value through a variety of open-end and closed-end funds.
The Dixie Group
The Dixie Group is a company with a niche focus on manufacturing and selling luxury flooring products. Its floors are primarily carpet, but it also began producing luxury vinyl flooring as well in recent years.
The company's customers fall into two main segments: residential and commercial. The residential segment customer base is primarily driven by home sales and remodeling, with a smaller contribution from new residential construction. The commercial segment is also driven by remodeling, with the biggest customers operating in the office, retail, higher education and upper-end hospitality areas.
Dixie's stock price has historically correlated strongly with whether or not it reports positive earnings. As shown in the chart below, the stock price has been highly cyclical, spiking when the company reported uptrends in net income and plunging again once net income started to decline into the negative range.
The historical stock price trend of the company appears to be repeating this time as well, with shares spiking from a little under $1 to their current price of around $2.73 following the positive earnings report for the third quarter of 2020.
In the upcoming quarters, Dixie's flooring business is expected to benefit from a strong tailwind related to the housing market. A higher volume of selling and remodelling in residential homes on the back of continued low interest rates will mean more business for the company, as will the selling and remodelling of commercial structures like office and retail buildings as weaker companies find themselves unable to make it through the economic recession and are eventually replaced by new names or stronger competitors.
Portfolio overview
Royce Investment Partners owns shares in 989 common stocks valued at a total of $9.27 billion. The top holdings are MKS Instruments Inc. (MKSI, Financial) and Quaker Chemical Corp. (KWR, Financial), each making up 1.16% of the equity portfolio, followed by Colfax Corp. (CFX, Financial) with 0.90%.
In terms of sector weighting, the firm is most invested in industrials and technology, followed by financial services and consumer cyclical. Dixie falls into the consumer cyclical category; Royce Investment Partners' other investments in this sector include Culp Inc. (CULP, Financial), a manufacturer of mattresses and upholstery fabrics, as well as Unifi Inc. (UFI, Financial), a yarn manufacturer.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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