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The Top 3rd-Quarter Trades of Chuck Royce's Firm

Small-cap investing firm moves to the cloud with Calix

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Nov 11, 2021
Summary
  • The firm's biggest buys for the quarter were Haemonetics and Calix.
  • Its top sells were Kulicke & Soffa Industries and SmileDirectClub.
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Royce Investment Partners recently released its 13F portfolio updates for the third quarter of 2021, which ended on Sept. 30.

Previously known as Royce & Associates, the firm changed its name to Royce Investment Partners in 2019. It was founded by

Chuck Royce (Trades, Portfolio) in 1972. The firm specializes in small-cap companies, choosing investments through a bottom-up, risk-conscious approach. The portfolio managers focus on quality and deep-value stocks.

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

HAE, Financial) and Calix Inc. (CALX, Financial), while its top sells were Kulicke & Soffa Industries Inc. (KLIC, Financial) and SmileDirectClub Inc. (SDC, Financial).

Haemonetics

Royce Investment Partners added 382,812 shares to its stake in Haemonetics Corp (

HAE, Financial), marking its largest buy of the quarter. The position had a 0.20% impact on the equity portfolio and now sits at 984,358 shares. During the quarter, shares changed hands for around $63.18 apiece.

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Based in Boston, Haemonetics is a global provider of medical products and solutions that aim to improve patient care and make health care more affordable. Its areas of focus are blood and plasma collection, the surgical suite and hospital transfusion services.

Haemonetics traded for about $59.56 a share on Nov. 11 for a market cap of $3.05 billion. The GuruFocus Value chart rates the stock as significantly undervalued.

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The company has a financial strength rating of 4 out of 10, driven by a low cash-debt ratio of 0.22 and an interest coverage ratio of 2.12. Its profitability rating is 6 out of 10; the company’s return on invested capital is typically higher than its weighted average cost of capital, indicating value creation.

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Calix

The firm’s top new buy was Calix (

CALX, Financial). It purchased 480,993 new shares after selling out of its previous investment in the stock in the fourth quarter of 2013. The stock now has a 0.18% weight in the equity portfolio. Shares traded for an average of $46.13 each during the quarter.

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Calix is a provider of cloud and software platforms, systems and services for communication service providers. It focuses on the access network, which is the portion of the network that governs available bandwidth and determines the services that can be offered by the communication service provider.

Calix traded for about $74.40 a share on Nov. 11 for a market cap of $4.46 billion. The GF Value chart rates the stock as significantly overvalued.

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The company has a financial strength rating of 8 out of 10, with a Piotroski F-Score of 7 out of 9 and an Altman Z-Score of 18.37 showing a fortress-like balance sheet. Its profitability rating is 3 out of 10. While growth has been good on a top-line basis, the per-share metrics aren’t good due to high share issuance.

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Kulicke & Soffa Industries Inc.

The firm sold 600,831 of its shares in Kulicke & Soffa Industries Inc. (

KLIC, Financial), leaving a remining holding worth 2,202,506 shares and impacting the portfolio by -0.25%. Shares traded around $62.40 during the three months through September.

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Kulicke & Soffa is a Singapore-based semiconductor manufacturing company that designs, manufactures and sells capital equipment and tools used to assemble semiconductor devices. It is a global leader in semiconductor packaging and electronic assembly solutions.

The stock traded for about $56.49 a share on Nov. 11 for a market cap of $3.50 billion. The GF Value chart rates the stock as modestly overvalued.

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The company has a financial strength rating of 8 out of 10, driven by a cash-debt ratio of 29.59 and an interest coverage ratio of 1,622.31. Its profitability rating is 7 out of 10. The operating margin of 28.39% and net margin of 26.81% are outperforming 83% of industry peers.

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SmileDirectClub

Royce Investment Partners completely sold out of its 3,715,467-share investment in SmileDirectClub Inc. (

SDC, Financial). The sale had a -0.25% impact on the equity portfolio. The stock traded for an average price of $6.24 per share during the quarter.

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SmileDirectClub is a teledentistry company headquartered in Nashville, Tennessee. It manufactures and sells custom clear aligners to straighten teeth, which serve as a cheaper and more convenient alternative to traditional braces.

The stock traded for about $4.21 a share on Nov. 11 for a market cap of $501.56 million. The stock has lost 74% since it went public in September of 2019.

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The company has a financial strength rating of 3 out of 10, with the Altman Z-Score of -0.46 suggesting a risk of bankruptcy, though the current ratio of 3.93 means the company should be able to keep paying its debts in the short term. Its profitability rating is 1 out of 10. The operating and net margins have mostly recovered from 2020 levels, but both remain in the negatives.

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Portfolio overview

As of the quarter’s end, the equity portfolio contained 1,001 stocks valued at a total of $14.55 billion as per the 13F filing. Turnover for the quarter was 9%.

The top holding was MKS Instruments Inc. (MKSI) with 0.99% of the equity portfolio, followed by Kulicke & Soffa with 0.96% and Kennedy-Wilson Holdings Inc. (KW) 0.87%.

Portfolio weighting statistics show that Royce Investment Partners has allocated the biggest portions of its portfolio to industrials, 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.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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