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Margaret Moran
Margaret Moran
Articles (451) 

Top 4th-Quarter Trades of John Rogers' Ariel Investments

Firm adds to Nielsen and FLIR, trims Microsoft

Ariel Investments recently disclosed its portfolio updates for the fourth quarter of 2020, which ended on Dec. 31.

The Chicago-based firm primarily invests in undervalued small and mid-cap companies that demonstrate sustainable competitive advantages, high barriers to entry, predictable fundamentals, low risk and the potential for double-digit earnings growth. John Rogers (Trades, Portfolio) is the chairman, co-CEO and chief investment officer of the firm. Rogers holds that a patient, long-term, independent and forward-looking approach is essential for generating good returns.

Based on its investing criteria, the firm's top buys for the quarter were Nielsen Holdings PLC (NYSE:NLSN) and FLIR Systems Inc. (NASDAQ:FLIR), while its biggest sells were Generac Holdings Inc. (NYSE:GNRC) and Microsoft Corp. (NASDAQ:MSFT).

Nielsen Holdings

The firm increased its stake in Nielsen Holdings (NYSE:NLSN) by 3,348,224 shares, or 44.17%, for a total holding of 10,927,743 shares. The trade had a 0.79% impact on the equity portfolio. During the quarter, shares traded for an average price of $16.27.

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Nielsen Holdings is a global measurement and data analytics company that provides information, data and market measurement services to clients in over 100 countries. It has its headquarters in New York and is domiciled in the U.K.

On Feb. 24, shares of Nielsen traded around $24.16 for a market cap of $8.65 billion. According to the GuruFocus Value chart, the stock is fairly valued.

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The company has a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10. The Altman Z-Score of 0.76 indicates the company could be at risk of bankruptcy, though the Piotroski F-Score of 5 out of 9 is typical of a financially stable company. The return on invested capital is typically lower than the weighted average cost of capital, so the company's growth is not profitable.

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FLIR Systems

The firm also added 1,468,293 shares, or 232.32%, to its investment in FLIR Systems (NASDAQ:FLIR) for a total stake of 2,100,295 shares. The trade had a 0.73% impact on the equity portfolio. Shares traded for an average price of $38.66 during the quarter.

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Headquartered in Wilsonville, Oregon, FLIR Systems is a global leader in the designing and manufacturing of thermal imaging infrared cameras, components and sensors. Its products are used for defense, industrial and commercial applications.

On Feb. 24, shares of FLIR Systems traded around $54.94 for a market cap of $7.21 billion. According to the GuruFocus Value chart, the stock is fairly valued.

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The company has a financial strength rating of 6 out of 10 and a profitability rating of 6 out of 10. While the cash-debt ratio of 0.4 is lower than 79% of industry peers, the Altman Z-Score of 5.01 indicates the company is not in financial distress. The three-year revenue growth rate is 4.8%, while the three-year Ebitda growth rate is 2.4%.

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Generac Holdings

The firm sold out of its 232,082-share position in Generac Holdings Inc. (NYSE:GNRC), which had a -0.65% impact on the equity portfolio. During the quarter, shares traded for an average price of $215.52.

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Wisconsin-based Generac Holdings is a manufacturer of automatic, stationary standby and portable generators for the residential, commercial, industrial and telecommunications markets around the world.

On Feb. 24, shares of Generac traded around $324.60 for a market cap of $20.31 billion. According to the GuruFocus Value chart, the stock is significantly overvalued.

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The company has a financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. The Piotroski F-Score of 7 out of 9 and Altman Z-Score of 9.06 indicate a fortress-like balance sheet. The ROIC has typically surpassed the WACC in recent years, indicating the company is creating value for shareholders as it grows.

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Microsoft

The firm reduced its Microsoft Corp. (NASDAQ:MSFT) holding by 152,109 shares, or 9.66%, for a remaining investment of 1,423,200 shares. The trade had a -0.46% impact on the equity portfolio. Shares traded for an average price of $215.07 during the quarter.

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Microsoft is a multinational tech giant headquartered in Redmond, Washington. The company develops, manufactures, licenses, sells and supports PCs, consumer and enterprise software, consumer and enterprise electronics and related services.

On Feb. 24, shares of Microsoft traded around $234.20 for a market cap of $1.76 trillion. According to the GuruFocus Value chart, the stock is significantly overvalued.

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The company has a financial strength rating of 7 out of 10 and a profitability rating of 8 out of 10. The interest coverage ratio of 24.45% and Altman Z-Score of 7.89 indicate that the company is in a strong financial position. The three-year revenue growth rate is 14.7% and the three-year Ebitda growth rate is 19.5%.

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Portfolio overview

As of the quarter's end, the firm held 140 common stock positions valued at a total of $8.88 billion. The firm added four new positions, sold out of six stocks and added to or reduced several other positions for a turnover of 7%.

The top holdings were Baidu Inc. (NASDAQ:BIDU) with 7.14% of the equity portfolio, Philip Morris International Inc. (NYSE:PM) with 4.11% and Microsoft with 3.57%. In terms of sector weighting, the firm was most invested in communication services and financial services, followed by industrials, technology and health care.

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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. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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