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Top 2nd-Quarter Buys of Chuck Royce's Firm

Small-cap investing firm releases portfolio updates

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Margaret Moran
Sep 01, 2021

Summary

  • Royce Investment Partners recently disclosed its 13F portfolio updates for Q2 2021
  • Its top buys for the quarter were Vontier, Trean Insurance Group, Upland Software, FormFactor and Meredith
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Royce Investment Partners recently released its 13F portfolio updates for the second quarter of 2021, which ended on June 30.

Renamed from Royce & Associates at the end of 2019, Royce Investment Partners is the firm founded by

Chuck Royce (Trades, Portfolio) in 1972. The firm specializes in small-cap companies, which it chooses through a bottom-up, risk-conscious approach. The portfolio managers focus on quality and deep value through a variety of open-end and closed-end funds.

Based on the firm’s latest 13F, its top buys for the quarter were Vontier Corp. (

VNT, Financial), Trean Insurance Group Inc. (TIG, Financial), Upland Software Inc. (UPLD, Financial), FormFactor Inc. (FORM, Financial) and Meredith Corp. (MDP, Financial).

Vontier Corp

The firm added 1,538,803 shares, or 116.78%, to its investment in Vontier Corp. (

VNT, Financial) for a total stake of 2,856,466 shares. The trade had a 0.34% impact on the equity portfolio. During the quarter, shares traded for an average price of $32.90.

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Vontier is an industrial technologies manufacturing company that primarily focuses on transportation and mobility. Businesses under its umbrella include wheel-service equipment maker Hennessy and fleet management company Teletrac Navman, among others.

On Sept. 1, shares of Vontier traded around $36.57 for a market cap of $6.18 billion. The stock has gained 7% since it spun off from its parent company in October of 2020.

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The company has a financial strength rating of 5 out of 10 and a profitability rating of 4 out of 10. The Piotroski F-Score of 7 out of 9 and Altman Z-Score of 3.04 show that the balance sheet is healthy. The return on invested capital (ROIC) typically surpassed the weighted average cost of capital (WACC), meaning the company is creating value for shareholders.

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Trean Insurance Group Inc.

The firm increased its Trean Insurance Group Inc. (

TIG, Financial) investment by 2,525,429 shares, or 1,062.89%, for a total of 2,763,029 shares. The trade had a 0.27% impact on the equity portfolio. Shares traded for an average price of $16.33 during the quarter.

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Trean is a full-service insurance management and reinsurance consulting company based in Wayzata, Minnesota. Its goal is to develop and deliver innovative solutions to the insurance market. The company’s subsidiaries include American Liberty and 7710 Insurance.

On Sept. 1, shares of Trean traded around $10.30 for a market cap of $528.11 million. According to the Peter Lynch chart, the stock is trading below both its intrinsic value and its median historical valuation.

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The company has a financial strength rating of 5 out of 10 and a profitability rating of 2 out of 10. The interest coverage ratio of 51.33 and cash-debt ratio of 2.74 show the company has plenty of resources to pay off its debt. The revenue has been steadily increasing, though the net income history has been more inconsistent.

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Upland Software Inc.

The firm invested in another 823,435 shares of Upland Software Inc. (

UPLD, Financial), increasing the holding by 67.44% to 2,044,380 shares. The trade had a 0.23% impact on the equity portfolio. During the quarter, shares traded for an average price of $44.04.

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Upland is an enterprise software company that provides cloud-based software to support sales, marketing and IT teams engage with customers and more effectively manage projects and costs. It has its headquarters in Austin, Texas.

On Sept. 1, shares of Upland traded around $39.66 for a market cap of $1.21 billion. According to the GuruFocus Value chart, the stock is “fairly valued.”

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The company has a financial strength rating of 3 out of 10 and a profitability rating of 3 out of 10. The cash-debt ratio of 0.33 and Altman Z-Score of 0.97 indicate the company could face liquidity issues. The operating margin of -4.76% and net margin of -24.97% are underperforming 64% of industry peers.

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FormFactor Inc.

The firm upped its stake in FormFactor Inc. (

FORM, Financial) by 804,757 shares, or 132.53%, for a total of 1,411,977 shares. The trade had a 0.20% impact on the equity portfolio. Shares traded for an average price of $39.60 during the quarter.

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Based in Livermore, California, FormFactor is a semiconductor company that provides advanced solutions for on-wafer test and measurement, such as engineering probe stations, analytical probes and probe cards.

On Sept. 1, shares of FormFactor traded around $39.07 for a market cap of $3.04 billion. According to the GuruFocus Value chart, the stock is “significantly overvalued.”

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The company has a financial strength rating of 8 out of 10 and a profitability rating of 4 out of 10. The interest coverage ratio of 127.96% and Altman Z-Score of 9.56% show a fortress-like balance sheet. The company has a three-year revenue per share growth rate of 5.9% and a three-year Ebitda per share growth rate of 11.5%.

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Meredith Corp

The firm added 655,354 shares, or 316.06%, to its investment in Meredith Corp. (

MDP, Financial) for a total of 862,703 shares. The trade had a 0.20% impact on the equity portfolio. During the quarter, shares traded for an average price of $35.28.

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Meredith is a Des Moines, Iowa-based media company that owns a variety of American magazines, including Better Homes & Gardens, People, allrecipes and Southern Living. It also has several television stations, websites and radio stations.

On Sept. 1, shares of Meredith traded around $42.75 for a market cap of $1.95 billion. According to the GuruFocus Value chart, the stock is “significantly overvalued.”

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The company has a financial strength rating of 3 out of 10 and a profitability rating of 7 out of 10. The Altman Z-Score of 1.3 implies the company could be at risk of bankruptcy in the next two years, though the Piotroski F-Score of 8 out of 9 is typical of a very healthy financial situation. The company has a three-year revenue per share growth rate of 8.5% and a three-year Ebitda per share growth rate of 44.7%.

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Portfolio overview

As of the quarter’s end, the firm’s equity portfolio consisted of 1001 stocks valued at a total of $14.55 billion. The top holdings were Kulicke & Soffa Industries Inc (

KLIC, Financial) with 1.18% of the equity portfolio, MKS Instruments Inc. (MKSI, Financial) with 0.95% and Kennedy-Wilson Holdings Inc. (KW, Financial) with 0.73%.

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In terms of sector weighting, the firm was most invested in industrials, followed by technology and financial services.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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 SEC filings for the quarter in question and may not include non-U.S.-listed international stocks or changes made after the quarter ended.
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