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Chuck Royce Adds CLNY, DDIC, DGII and Reduces SUPX

Holly LaFon

Holly LaFon

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Chuck Royce is the president, co-chief investment officer and portfolio manager at Royce & Associates, a $37 billion mutual fund based in New York. Royce’s firm focuses on value investing in small-cap companies and has achieved sizable returns with these stocks. In 2009, Royce’s Premier Fund returned 26.5% versus the S&P 500’s 15%, and in 2009 it returned 33.3% versus the S&P 500’s 26.5%. It had 10-year cumulative returns of 186.5%, far surpassing the S&P’s 16.4%. According to his latest 13-G filings, in May he added Colony Financial Inc. (CLNY), DDi Corp (DDIC) and Digi International Inc. (DGII) and reduced Supertex Inc. (SUPX).

To ask Chuck Royce a question for our upcoming interview with him, click here.

Colony Financial

Chuck Royce Added 37.49% to his stake in Colony Financial Inc. at the average price of $18.42. He owns 2,621,108 shares.

Colony Financial Inc. is a commercial real estate firm that acquires, originates, invests in, finances and manages real estate debt investments, particularly commercial mortgage loans. It has a market cap of $564.3 million; its shares were traded at around $18.42 with a P/E ratio of 15.5 and P/S ratio of 20.5. The dividend yield of Colony Financial Inc. stocks is 7%.

Colony Financial was founded in June 2009 to acquire distressed loans from the recession. It had its IPO in September of 2009. For the year of 2009, the company had a net loss of $0.4 million or $0.06 per basic and diluted share. In 2010, it had net income of $17.7 million or $1.20 per basic share and $1.18 per diluted share.

In March of this year, the company’s stock peaked at over $21 per share, but then dropped off to a little over $18 per share by April 15. From March 30-31, the stock dipped 6.7% when the company issued a common stock offering. The company needed the cash to “acquire [its] target assets and for working capital and general corporate purposes.” The offering raised net proceeds of $271.8 million. The company used some of the money to acquire an existing $60 million first mortgage loan of condominium interests within two Manhattan landmark buildings, as well as committed to originate an $18 million senior secured term loan secured by substantially all of the assets of Grubb & Ellis Company and its affiliates.

Digi International Inc.

Chuck Royce added 16.52% to his stake in Digi International Inc. (DGII) at the average price of $11.51 last week. He owns 2,814,444 shares.

Digi International Inc. is a worldwide provider of communications hardware and software, delivering seamless connectivity solutions for peripheral server-based remote access and local area networking markets. Digi International Inc. has a market cap of $290 million; its shares were traded at around $11.51 with a P/E ratio of 32 and P/S ratio of 1.6.

Digi International’s earnings declined from a peak of $19.77 million in 2007 to $8.9 million 2010. Last year its net income more than doubled from $4 million to $8.9 million; however, that still did not place it back up to the double-digit net income it had for the prior four years. It has about $90 million of cash on its balance sheet and no long-term debts.

The company’s stock has risen 13.7% over the last year, but declined 11.5% over the last five years.

Several of Digi’s devices have been picked up by Powerdash, a company that designs energy monitoring for solar inverters, smart meters and other clean energy devices.

DDi Corp.

Chuck Royce increased his holding of DDi Corp 110.45% at the average price of $9.02. He owns 2,459,088 shares.

DDi Corp. provides technologically advanced, time-critical electronics design, development and manufacturing services to original equipment manufacturers and other electronics manufacturing service providers. DDi Corp has a market cap of $182.2 million; its shares were traded at around $9.02 with a P/E ratio of 8.3 and P/S ratio of 0.7. The dividend yield of DDi Corp stocks is 4.4%.

DDi has had a checkered earnings history. It had negative net income the first three years since its founding in 2004, earned $0.68 million in 2007, then plummeted back down to a net loss of $33.43 million in 2008. In 2009, net income increased to $1.78 million, and in 2010 in jumped to $20.7 million, by far its best year.

In 2010, DDi’s financial results benefitted from increased net sales to the military/aerospace segment, which grew to $48.0 million in 2009. According to their CEO, Mikel Williams, the company consolidated from three facilities in Toronto to one facility in Anaheim, Calif. The company predicts that it will beat the anticipated industry growth rate in 2011 due to its “technical capabilities, sales distribution network and extensive customer base.”

DDi’s stock is up 5.8% over the last five years and down 23% year to date.

Supertex Inc.

Chuck Royce reduced his holdings in Supertex Inc. by -55.05% at the average price of $20.94. He owns 720,345 shares.

Supertex Inc. is a technology-based producer of high voltage analog and mixed signal semiconductor components. Supertex Inc. has a market cap of $271.9 million; its shares were traded at around $20.94 with a P/E ratio of 22.8 and P/S ratio of 4.1. Supertex Inc. had an annual average earnings growth of 12.2% over the past 10 years.

Supertex has stronger financial results than Royce’s May portfolio additions. It has been profitable for the last 10 years, and had net income of 5.12 million in 2010, which is down from its 2009 net income of $12.5 million. Its earnings growth for the last 10 years is 12.2% and 495% over the last 12 months; it had a 5-year decline in earnings of 12.9%. Supertex has $137 million in cash and no debt.

The company currently reads at $21.14, just in between its 52-week range of $20.82-21.45. Though the company is doing well in many categories, it is subject to the ever-changing nature of the technology market. Earnings are not guaranteed to stay up and depend on the success of future products. As a cyclical technology company, its earnings have tended to rise and then fall rather than grow. More information from a GuruFocus author about Supertex can be found here.


Rating: 2.6/5 (5 votes)

Comments

augustabound
Augustabound - 2 years ago
OK, I need some help here. Royce is one of the fund companies I like to follow, but I'm having trouble with their 13-G filings at the sec site. Where does it say buy or sell? I read the 4 filings from May 5th and I don't see any difference between the Supertex filing and the others.

I thought there was a box to check for their action taken. (Or maybe there is and I'm blind?) :)
gurufocus
Gurufocus premium member - 2 years ago
There is no indication of buys and sells in 13G filings. We have to compare the new filing with the previous one to figure out it is a buy or sell.

GuruFocus.
augustabound
Augustabound - 2 years ago
Gotcha, thanks for that.

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