John began to learn about finance when he was just a kid, at 12. His father bought him stocks instead of toys for his birthdays and Christmas. He then studied economics at Princeton University. Once he graduated he started working at William Blair & Company, LLC as a stockbroker. In 1983 he founded Ariel Investments.
His strategy is based on finding undervalued small and medium sized companies with depreciated price. Most importantly he always points out that to invest well an investor should be patient and should study the prospects carefully. He generally invests when companies are trading at a low valuation relative to potential earnings and/or a low valuation relative to intrinsic worth.
Here are some of his top growth stocks:
Nordstrom, Inc. (JWN): Nordstrom is one of the leading players in the extremely fragmented specialty retail sector. The company operates hundreds of brands targeted at the whole family in 30 states. The number of stores it operates enables JWN to profit from high margins in revenue. Furthermore, JWN is able to turn inventory much more quickly than competitors, thus maintaining fresh, new fashions in the stores.
JWN is benefitting from high-end customers who do not look at prices at the time of buying. They pay attention to fashion. Furthermore, input costs do not represent much of the total cost of fashion goods and vendors are given flexibility to alter the manufacture of products to protect margins.
Despite the economic recession, management considers that the company will continue growing. Indeed the real estate environment benefits Nordstrom at the time of negotiating rents. JWN has a wide space to grow. It is one eighth the size of Macy’s.
Financially speaking, earnings per share during the last quarter increased. The company reported them at $0.59. John Rogers clearly invested in the company because EPS surpassed the Zacks Consensus Estimate of $0.58 and they represent a 11.3% increase vis-à-vis the prior-year period when EPS were reported at $0.53. This increase is attributed to strong performance and better sales.
As regards earnings guidance, Nordstrom has narrowed it between $3.05 and $3.10 per share in respect to a previous forecast of $2.95 to $3.10. This earnings guidance is based on the growth of 6.0% in same-store sales. Previous forecasts positioned the earnings guidance in the range of 4.0% to 6.0%.
The company has recently purchased HauteLook Inc. The company will enable JWN to build its multi-channel retail format and will increase direct business capabilities.
Operations are based on a variable cost business model and between 40% and 45% of selling, general and administrative expenses have a variable nature. This flexible structure gives the company a chance to avoid sluggish sale trends on margins and provides emerging opportunities.
Apollo Group Inc A (APOL): Apollo Group is one of the world's largest for-profit education companies. The company offers both online and physical learning. In the latter case, through centers located in almost 40 states. The programs range from associate to doctorate degrees in areas such as business, education, health care, technology, and social and behavioral sciences.
An important advantage about Apollo is that it is boosting and focusing on adults learning. This new focus should improve the company’s retention and loan default levels. APOL has created a partnership with Carlyle Group to internationally expand.
Most importantly, the firm is able to generate substantial cash flow and adjust its business model to improve profitable share gains.
HCC Insurance Holdings Inc. (HCC): HCC is an insurance company with operations in Bermuda, Spain, and the United Kingdom. Its subsidiaries work with life insurers, property-casualty insurers, underwriting agencies, and several insurance and reinsurance brokerages.
The company works through both direct insurance and reinsurance. Financially speaking, the company is healthy. Book value per share grew to $30.67 or 3.4% in the quarter and by 7% year-to-date. Furthermore, cash flow was strong: $166 million and operating cash flow $326 million. However, debt to capital ratio increased in the last period due to the different share repurchases the company engaged in. Fortunately, liquidity remains strong.
Last but not least, the firm has decided to exit equity investments to reduce portfolio volatility. Furthermore, the company applies a smart acquisition strategy to buy insurance underwriters and agencies at a discount.
Franklin Resources Inc. (BEN): Franklin is one of the most important asset managers in the US and holds thousands of advisor relationships.
The firm has a diverse asset portfolio and can also enjoy from a geographical standpoint although investing styles have come out of fashion. Furthermore, BEN has been recognized for obtaining organic growth at an average of 2.4% since the market recovered in 2009.
In terms of shareholders, the company has increased its dividend to $0.27 per share and at the beginning of 2012 it paid shareholders $2 per share in dividends.
In 2011, the market was severely affected by the global economic crises and the concerns about the debt issue in Europe. However, the recovery of the economy during the first half of the year significantly benefitted the company in terms of fee revenues and operating income.
The company is performing very well and expanding its foothold. Actually in 2011, it entered into new deals with Telegis Capital Management, where it purchased 20% of the stake. Furthermore, Franklin completed the acquisition of Rensburg Fund Management. This acquisition should enable the company to diversify product offerings in important markets. Finally, Franklin acquired Balanced Equity Management to enhance its presence in the Australian market.
John Rogers bet on the company because, in general, Franklin has very good growth prospects and its investment products provide it advantages against competitors. Despite there are still concerns about the general economic situation, the company still focuses on the performance of sponsored investment products and on providing high-quality customer service.
Financially speaking, Franklin is healthy. The company generates positive cash flow even when there are headwinds. Most importantly, it has been increasing its dividend for the past six years. In the last five-year period, the company has enhanced shareholder value by returning more than $6.0 billion to shareholders.
St Jude Medical, Inc. (STJ): STJ is a leading company in the development, manufacture and distribution of cardiology devices. The stock is currently trading below historical levels and growth has dropped. The dividend also provides a 2.4% yield and should grow annually by about 10% on average over the next few years.
As regards market access, St Jude has increased its market share in the implantable cardioverter defibrillator market since 2001 and has a solid pipeline. This success is attributed to the expansion in sales and margins. Most importantly, in the last decade, the net profit margin has increased from 15.1% to 19.1%.
John Rogers picked up the company because the P/E ratio is currently 13 on a trailing twelve month basis and less than 10 on a forward basis. Historically the P/E has ranged between 11.1 and 36.5, averaging about 23. As regards future forecasts, the P/E is expected to expand into the 16% - 18% range considering its consistent growth rates and the addition of a dividend.
In terms of future results, the company´s minority stake in a new wireless monitoring technology for heart failure could involve a stream of eventual CRM patients. The Advanced Neuromodulation System purchase leaves St. Jude well-positioned to take advantage of another billion-dollar market.
As regards neurostimulators, they have been growing by 20% and it is expected that this increase will continue thanks to the technology´s efficiency in treating other conditions such as Parkinson´s.