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Sydnee Gatewood
Sydnee Gatewood
Articles (3134) 

Chuck Royce's Firm Trims 3 Positions in November

Small-cap specialist reduces holdings of Insteel Industries, Northrim BanCorp and Perceptron

December 02, 2020 | About:

Royce Investment Partners revealed earlier this week it reduced three positions in November.

The New York-based firm, which was founded in 1972 by Chuck Royce (Trades, Portfolio), specializes in small-cap companies. The portfolio management team picks stocks based on an active, bottom-up, risk-conscious and fundamental approach. They also search for value opportunities among companies trading at a discount to enterprise value.

According to Real-Time Picks, a Premium GuruFocus feature, the firm curbed its holdings of Insteel Industries Inc. (NASDAQ:IIIN), Northrim BanCorp Inc. (NASDAQ:NRIM) and Perceptron Inc. (NASDAQ:PRCP) on Nov. 30.

Insteel Industries

After reducing the Insteel Industries holding by 32.35% in the third quarter, the firm trimmed another 18.17% off the position, selling 116,961 shares. The transaction had an impact of -0.03% on the equity portfolio. The stock traded for an average price of $23.13 per share on the day of the transaction.

Royce's firm now holds 526,872 shares of Insteel total, representing 0.13% of the equity portfolio. GuruFocus estimates the firm has gained 7.12% on the investment.

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The Mount Airy, North Carolina-based company, which manufactures steel wire reinforcement products for concrete construction applications, has a $447.89 million market cap; its shares were trading around $23.20 on Wednesday with a price-earnings ratio of 23.67, a price-book ratio of 1.69 and a price-sales ratio of 0.95.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 7 out of 10, however, leans more toward undervaluation.

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GuruFocus rated Insteel's financial strength 9 out of 10 on the back of a comfortable level of interest coverage. The Altman Z-Score of 6.53 also indicates the company is in good standing even though the weighted average cost of capital eclipses the return on invested capital, indicating value is being destroyed.

The company's profitability scored a 6 out of 10 rating. Although the margins are in decline, Insteel's returns are outperforming over half of its competitors. It is also being supported by a moderate Piotroski F-Score of 6, which implies operating conditions are stable, and a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Despite the reduction, Royce Investment Partners is still the company's largest guru shareholder with a 2.73% stake. Hotchkis & Wiley, Jeremy Grantham (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss also have positions in the stock.

Northrim BanCorp

With an impact of -0.01% on the equity portfolio, the firm curbed its Northrim stake by 52.01%, selling 43,182 shares. Shares traded for an average price of $31.77 each during the quarter.

The firm now holds 39,837 shares total, accounting for 0.01% of the equity portfolio. GuruFocus data shows it has gained 10.99% on the investment since the second quarter of 2015.

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The bank holding company, which is headquartered in Anchorage, Alaska, has a market cap of $197.36 million; its shares were trading around $31.59 on Wednesday with a price-earnings ratio of 7.52, a price-book ratio of 0.93 and a price-sales ratio of 1.67.

According to the Peter Lynch chart, the stock is undervalued. The valuation rank of 9 out of 10 also aligns with this assessment.

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Northrim's financial strength was rated 4 out of 10 by GuruFocus. Despite having comfortable interest coverage and a high cash-to-debt ratio, the WACC is above the ROIC, suggesting value destruction.

The company's profitability did not fare much better, scoring a 5 out of 10 rating on the back of strong returns that outperform a majority of industry peers, a moderate Piotroski F-Score of 6 and consistent earnings and revenue growth. Northrim also has a 3.5-star predictability rank. GuruFocus says companies with this rank return an average of 9.3% annually.

Of the gurus invested in Northrim, Jim Simons (Trades, Portfolio)' Renaissance Technologies has the largest holding with 2.06% of outstanding shares. Private Capital (Trades, Portfolio), Hotchkis & Wiley and Grantham also have positions in the stock.

Perceptron

Impacting the equity portfolio by -0.01%, the fund reduced its Perceptron holding by 67.54%, selling 178,979 shares. The stock traded for an average per-share price of $6.97 during the quarter.

Royce Investment Partners now holds 86,025 shares total, making up 0.01% of the equity portfolio. GuruFocus data shows the firm has lost an estimated 21.15% on the investment.

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The Plymouth, Michigan-based company, which provides 3D automated measurement solutions and coordinate measuring machines, has a $68.26 million market cap; its shares were trading around $6.98 on Wednesday with a price-book ratio of 1.76 and a price-sales ratio of 1.16.

Based on the median price-sales chart, the stock appears to be overvalued. The GuruFocus valuation rank of 4 out of 10 also aligns with this analysis since the share price and price-sales ratio are both approaching multiyear highs.

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GuruFocus rated Perceptron's financial strength 6 out of 10. The Altman Z-Score of 2.45, however, indicates the company is under some pressure since revenue per share has been declining for the past five years.

Weighed down by negative margins and returns that underperform a majority of competitors, the company's profitability scored a 4 out of 10 rating. Perceptron also has a low Piotroski F-Score of 3, indicating business conditions are in poor shape, and a one-star predictability rank.

Simons' firm is Perceptron's largest guru shareholder with a 7.09% stake. John Rogers (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) also have positions in the stock.

Portfolio composition and performance

Nearly half of Royce Investment Partners' $9.27 billion equity portfolio, which was composed of 989 stocks as of the end of the third quarter, was invested in the industrials and technology sectors, followed by smaller holdings in the financial services and consumer cyclical spaces.

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According to the firm's website, the Royce Premier Fund returned 34.13% in 2019, outperforming both the S&P 500 Index's return of 31.49% and the Russell 2000's 25.52% return.

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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