Ariel Investments recently disclosed its portfolio updates for the third quarter of 2021, which ended on Sept. 30.
John Rogers (Trades, Portfolio) is the Chairman, co-CEO and Chief Investment Officer of Ariel Investments. 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. Rogers believes that a patient, long-term, independent and forward-looking approach is essential for generating good returns.
Based on its latest 13F report, the firm’s top buys for the quarter were for Madison Square Garden Entertainment Corp. (MSGE, Financial), Manchester United PLC (MANU, Financial), Madison Square Garden Sports Corp. (MSGS, Financial), Gentex Corp. (GNTX, Financial) and ADT Inc. (ADT, Financial).
Madison Square Garden Entertainment Corp
The firm added 2,435,514 shares to its Madison Square Garden Entertainment Corp. (MSGE, Financial) investment, brining the total number of shares owned to 5,640,442 and adding 1.62% to the equity portfolio. During the quarter, shares changed hands for an average price of $75.17.
Madison Square Garden Entertainment was spun off from Madison Square Garden in April of 2020. This company consists of Madison Square Garden’s entertainment and sports venue divisions, while the parent company, re-named Madison Square Garden Sports Corp (MSGS, Financial), has become a pure-play sports team owner.
On Nov. 26, shares of Madison Square Garden Entertainment traded around $67.01 for a market cap of $2.28 billion. Since spinning off from its parent company in mid-2020, the stock has lost 24%.
The company has a financial strength rating of 4 out of 10 and a profitability rating of 1 out of 10. The Altman Z-Score of 0.43 and cash-debt ratio of 0.63 show the company could face liquidity issues. Both the operating margin and net margin are in negative territory, indicating the company is not profitable.
Manchester United PLC
Ariel Investments’ top new buy for the quarter was Manchester United PLC (MANU, Financial). It acquired 6,580,474 shares of the company, giving the stock a 1.17% weight in the
equity portfolio. Shares traded for around $16.82 apiece during the quarter.
UK-based Manchester United manages the soccer team and affiliated club activities of the Manchester United Football Club. This includes the media network, foundation, fan zone, news features, sports features and team merchandise.
On Nov. 26, shares of Manchester United traded around $15.49 for a market cap of $2.52 billion. According to the GuruFocus Value chart, the stock is fairly valued.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 5 out of 10. The current ratio is 0.43 and the Altman Z-Score is 1.08, so the company will likely need to raise additional liquidity to avoid bankruptcy. The company has a three-year revenue per share growth rate of -3.8% and a three-year Ebitda per share growth rate of -10%.
Madison Square Garden Sports Corp
The firm also picked up another 628,178 shares of Madison Square Garden Sports Corp. (MSGS, Financial), brining the total holding to 822,549 shares and adding 1.07% to the equity portfolio. During the three months through the end of September, shares traded for around $171.34 each.
As mentioned above, when Madison Square Garden Entertainment was spun off from Madison Square Garden in April of 2020, the remainder of the parent company was re-named to Madison Square Garden Sports Corp and became a pure-play sports team owner.
On Nov. 26, shares of Madison Square Garden Sports traded around $172.63 for a market cap of $4.18 billion. According to the GuruFocus Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 2 out of 10 and a profitability rating of 2 out of 10. The current ratio of 0.39 and Altman Z-Score of 1.39 show severe financial distress. The weighted average cost of capital (WACC) is significantly higher than the return on invested capital (ROIC), indicating that the company is not creating value.
Gentex Corp
The firm invested in 3,256,045 new shares of Gentex Corp. (GNTX, Financial) after selling out of its previous investment in the stock in the third quarter of 2013. The stock now has a 0.98% weight in the equity portfolio, and shares were trading for an average price of $32.29 during the quarter.
Headquartered in Zeeland, Michigan, Gentex is a designer and manufacturer of innovative technologies for the automotive industry, including automatic-dimming rear-view mirrors, camera-based driver assistance systems and the HomeLink Wireless Control System and advanced technological equipment.
On Nov. 26, shares of Gentex traded around $35.58 for a market cap of $8.42 billion. The Peter Lynch chart estimates that the stock is trading above both its intrinsic value and its median historical valuation.
The company has a financial strength rating of 10 out of 10 and a profitability rating of 9 out of 10. The Piotroski F-Score of 9 out of 9 and Altman Z-Score of 25.16 reveal a fortress-like balance sheet. The ROIC is consistently higher than the WACC, meaning the company is creating value for shareholders.
ADT Inc.
Rogers’ firm increased its ADT Inc. (ADT, Financial) holding by 8,973,442 for a total stake of 24,287,261 shares. At the quarter’s average price of $9.23 per share for ADT, the trade had a 0.67% impact on the equity portfolio.
ADT is a security services company based in Boca Raton, Florida. It provides electronic security, fire protection and other related alarm monitoring services for residences as well as small and large business in the U.S.
On Nov. 26, shares of ADT traded around $8.51 for a market cap of $7.07 billion. According to the GuruFocus Value chart, the stock is modestly overvalued.
The company has a financial strength rating of 2 out of 10 and a profitability rating of 4 out of 10. The Altman Z-Score of 0.28 is worryingly low, though the Piotroski F-Score of 4 out of 9 indicates financial stability. The three-year revenue per share growth rate is 5.8%, while the three-year Ebitda per share growth rate is -6.6%.
Portfolio overview
As of the end of the quarter, the firm held 109 common stock positions valued at a total of $10.94 billion. The turnover for the period was 11%.
The top holding by portfolio weight was Madison Square Garden Entertainment with 3.75%, followed by Baidu Inc. (BIDU, Financial) with 3.66% and Philip Morris International Inc. (PM, Financial) with 3.53%.
In terms of sector weighting, the firm had the highest portions of its equity portfolio allocated to financial services, communication services and industrials.
