Daruma Capital Management leader Mariko Gordon (Trades, Portfolio) disclosed five new positions when she released her second-quarter portfolio this week.
Focusing on a concentrated portfolio of small and mid-cap companies, the New York-based firm says on its website that it believes the best time to buy a stock in not just when it offers good value, but when clear catalysts that will send the price higher can be identified. Examples of catalysts include better-than-expected sales, earnings or cash flow growth.
The guru established positions in Diplomat Pharmacy Inc. (DPLO, Financial), Select Energy Services Inc. (WTTR, Financial), Catalent Inc. (CTLT, Financial), MasTec Inc. (MTZ, Financial) and Aramark (ARMK, Financial).
Diplomat Pharmacy
Gordon invested in 592,659 shares of Diplomat Pharmacy for an average price of $23.31 per share, dedicating 0.98% of the equity portfolio to the position.
The Flint, Michigan-based company, which provides specialty pharmacy services, has a market cap of $1.41 billion; its shares were trading around $19.01 on Thursday with a price-earnings ratio of 380, a price-book ratio of 1.85 and a price-sales ratio of 0.27.
The Peter Lynch chart below shows the stock is trading above its fair value, suggesting it is overpriced.
Diplomat Pharmacy’s financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. Despite having poor interest coverage, poor earnings quality and a slowdown in revenue growth, the Altman Z-Score of 3.6 suggests the company is financially sound. Although the operating margin is expanding, it still underperforms 69% of competitors. The company also has a moderate Piotroski F-Score of 5, which implies operations are stable.
With her purchase of 0.8% of the company’s outstanding shares, Gordon became its largest guru shareholder. Joel Greenblatt (Trades, Portfolio) and Wilbur Ross (Trades, Portfolio)’ Invesco Private Capital (Trades, Portfolio) are also shareholders.
Select Energy
The investor picked up 714,122 shares of Select Energy for an average price of $147.72 per share, allocating 0.67% of the equity portfolio to the holding.
Headquartered in Houston, the company, which provides water management solutions to the energy industry, has a $1.37 billion market cap; its shares were trading around $12.77 on Thursday with a forward price-earnings ratio of 11.92, a price-book ratio of 1.17 and a price-sales ratio of 0.78.
According to the median price-sales chart below, the stock is trading below its historical average.
Boosted by a sufficient level of interest coverage and a high Altman Z-Score, GuruFocus rated Select Energy’s financial strength 6 out of 10. The company’s profitability and growth did not fare as well, scoring a 1 out of 10 rating as its margins and returns significantly underperform industry peers.
Gordon is the only guru invested in the stock, holding 0.67% of outstanding shares.
Catalent
The guru established an 112,341-share holding in Catalent for an average price of $40.42 per share, giving the stock 0.31% space in the equity portfolio.
The specialty and generic drug manufacturer, which is based in New Jersey, has a market cap of $5.87 billion; its shares were trading around $40.50 on Thursday with a price-earnings ratio of 81, a price-book ratio of 5.05 and a price-sales ratio of 2.22.
Based on the Peter Lynch chart below, the stock appears to be overpriced since it is trading much higher than its fair value.
Catalent’s financial strength was rated 5 out of 10 by GuruFocus. In addition to having poor interest coverage and declining revenue per share, the Altman Z-Score of 1.58 indicates the company is in danger of going bankrupt. The company’s profitability and growth was rated 4 out of 10. While its operating margin outperforms 63% of competitors, its net margin and returns underperform. The Piotroski F-Score of 4 suggests operations are stable.
With 1.6% of outstanding shares, Andreas Halvorsen (Trades, Portfolio) is the company’s largest guru shareholder. Mairs and Power (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) also own the stock.
MasTec
Having previously closed a stake in MasTec in the first quarter of 2017, Gordon opened a new 88,573-share position. The trade had an impact of 0.29% on the portfolio.
The Coral Gables, Florida-based infrastructure engineering and construction company has a $3.44 billion market cap; its shares were trading around $41.83 on Thursday with a price-earnings ratio of 10.55, a price-book ratio of 2.41 and a price-sales ratio of 0.52.
The Peter Lynch chart below suggests the stock is undervalued since it is trading below its fair value.
GuruFocus rated MasTec’s financial strength 5 out of 10. While the company has poor interest coverage due to issuing $188.3 million in new long-term debt over the last several years, the Altman Z-Score of 3 indicates it is fiscally secure. The company’s profitability and growth was rated 7 out of 10. Despite having a declining operating margin, MasTec is supported by a moderate Piotroski F-Score of 5 and a business predictability rank of three out of five stars. According to GuruFocus, companies with this rank see an average increase of 8.2% per year and have consistent earnings and revenue growth. The rank is on watch, however, as the company has posted losses in operating income over the last three years.
Steven Cohen (Trades, Portfolio) has the largest position among the gurus with 1.22% of MasTec’s outstanding shares. Pioneer, Caxton Associates (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss are also shareholders.
Aramark
Having previously exited a position in Aramark in the fourth quarter of 2017, Gordon purchased a new holding of 111,663 shares for an average price of $38.28 per share. The trade expanded the equity portfolio 0.27%.
The food service company, which is based in Philadelphia, has a market cap of $10.05 billion; its shares were trading around $40.77 on Thursday with a price-earnings ratio of 20.27, a price-book ratio of 3.52 and a price-sales ratio of 0.66.
According to the Peter Lynch chart below, the stock is overpriced since it is trading above its fair value.
Aramark’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. As a result of declining revenue per share and issuing approximately $2.1 billion in new long-term debt over the last three years, the Altman Z-Score of 1.99 indicates the company is under some financial stress. The company is strengthened, however, by an expanding operating margin and a Piotroski F-Score of 6, which suggest business conditions are stable.
Of the gurus invested in Aramark, Larry Robbins (Trades, Portfolio) has the largest stake with 2.05% of outstanding shares. Cohen, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Pioneer, Chuck Royce (Trades, Portfolio) and Caxton are also shareholders.
Other trades
Gordon added to several other positions during the quarter, including Beacon Roofing Supply Inc. (BECN, Financial), Boingo Wireless Inc. (WIFI, Financial), Hortonworks Inc. (HDP, Financial), Pacira Pharmaceuticals Inc. (PCRX, Financial) and Agnico Eagle Mines Ltd. (AEM, Financial).
The guru’s $1.5 million portfolio, which consists of 50 stocks, is largely invested in the industrials and technology sectors. According to its website, Daruma’s Small-Cap Composite Fund underperformed its benchmark in 2017 with a return of 12.24%. The Russell 2000 posted a 14.65% return.
Disclosure: No positions.
