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Holly LaFon
Holly LaFon
Articles (7842) 

Microcap Man Chuck Royce Reveals Top New Buys

February 07, 2013 | About:
Chuck Royce’s Royce Funds concentrates on small and micro-cap stocks since its founding in 1972. He uses a disciplined value approach to investing in this universe.

In the fourth quarter, Royce reports to buying 56 new stocks for his 1,359-stock portfolio, which is valued at $30.84 billion. The portfolio is also 27.1 percent weighted in its largest sector, technology, followed by a second-place 16 percent weighting in the consumer cyclical sector.

Royce’s top new buys in the fourth quarter were: Alere Inc. (NYSE:ALR), Saga Communications Inc. (SGA), Geospace Technologies Corp. (NASDAQ:GEOS) and BankUnited Inc. (NYSE:BKU).

New Buy: Alere (NYSE:ALR)

Royce bought 409,000 shares of Alere at its lowest average price since 2008, $19 per share.

Alere’s business is to provide patient monitoring tools and value-added healthcare services to improve quality of care and lower costs for patients and health professionals.

On Thursday, Alere is trading for $22.14 per share, and has a $1.79 billion market cap.

The company increased revenue in the past five years at a rate of 13.9 percent and free cash flow at 18.4 percent. Its book value has declined at a rate of 11.5 percent over the same span.

In the third quarter, Alere reported quarterly net revenue of $691.4 million, an increase from $585.8 million in the third quarter of 2011. It also had a net loss of $9.2 million, compared to net income of $234.2 million in the third quarter of 2011. The third quarter of 2011 included a $288.9 million gain resulting from a joint venture between Alere and the Procter Gamble Company (PG).

Alere has $813 million in cash on its balance sheet, and $4.14 in long-term liabilities and debt.

Alere also has a P/B of 0.8 and P/S of 0.64.


ALR data by GuruFocus.com

New Buy: Saga Communications Inc. (SGA)

Royce bought 182,829 shares of Saga Communications for $33 per share, which is equivalent to a 4.3 percent stake in the company.

Shares of Saga Communications are near a 52-high, priced at $46.92 on Thursday. The company has a market cap of $256.5 million.

Over the same span of time, Saga’s revenue fell at a rate of 11.9 percent annually, and book value fell at 1.1 percent. Free cash flow increased at 7.9 percent annually.

Saga Communications is a company that acquires, develops and operates radio and television broadcasting properties in 26 markets.

In the third quarter, the company’s revenue increased 1.2 percent from the comparable period to $32.4 million, and net income increased 17.2 percent to $4.3 million. Free cash flow also increased 2.2 percent to $6.1 million.

On Dec. 12, 2012, Saga declared a 4-for-3 stock split, distributed to shareholders on Jan. 16, 2013.

The company has a P/E of 16.5, P/B of 2.5 and P/S of 2.1.


SGA data by GuruFocus.com

New Buy: Geospace Technologies Corp. (NASDAQ:GEOS)

Royce bought 68,834 shares of Geospace Technologies for $72 per share on average in the fourth quarter.

The stock has already gained 54 percent from his average purchase price. Trading for $110.83 per share on Thursday afternoon, Geospace has a market cap of $1.42 billion.

Founded in 1980, Geospace creates technology that gathers seismic data for the oil and gas industry, to aid it in searching for more sources of energy.

In the last five years, the company saw its revenue decline at a rate of 2.5 percent. Its EBITDA increased at a rate of 21.8 percent and book value at 0.3 percent, over the same span.

The share price of Geospace increased more than 18 percent on Thursday, after the company reported record revenue and earnings for its first quarter. Its revenue jumped 80 percent year over year to $77.8 million, and net income grew 153 percent to $22 million, or $1.70 per diluted share.

Its greatest sales increase was seen in its wireless products, which produced $46.9 million in revenues, on the sale of 47,000 channels of its GSX system. Reservoir products also saw substantial growth, increasing to $11.2 million in revenue.

Seismic product revenue remained flat from the previous year, and its non-seismic products revenue had a modest decline.

Geospace has a P/E of 44.3, P/B of 32.6 and P/S of 15.


GEOS data by GuruFocus.com

New Buy: BankUnited Inc. (NYSE:BKU)

Royce purchased 243,098 shares of BankUnited for $24 per share on average in the fourth quarter.

BankUnited touched its 52-week low in the fourth quarter, but has gained more than 10 percent year to date. It trades for $27.01 per share on Thursday afternoon and has a market cap of $2.57 billion.

BankUnited was recapitalized in 2009 with a $900 million investment from a group of investors led by John A. Kanas. The bank serves clients in the coastal regions of Florida.

For the year ended Dec. 31, 2012, BankUnited reported net income of $211.3 million, or $2.05 per diluted share, compared to net income of $63.2 million, or $0.62 per share, in 2011. The year 2011’s results included a $110.4 million charge related to its IPO in the first quarter of 2011. The bank also generated a return on average stockholders’ equity of 12.45 percent, and return on assets of 1.71 percent,.

In the fourth quarter, the bank also increased its quarterly dividend by 24 percent to $0.21 per share.

BankUnited has a P/E of 13.18, P/B of 1.4 and P/S of 3.9.


BKU data by GuruFocus.com

To see more of Chuck Royce’s picks, go to his portfolio here. Also check out the undervalued stocks, top growth companies and high yield stocks of Chuck Royce.

Rating: 2.3/5 (3 votes)


Rlawson36 premium member - 4 years ago
ON ALR, you note that it has $800 mm in cash on the balance sheet, but I only show $300 million as of their latest financials.

Also, you list a price to book of .8. But out of total net worth of $2.2 billion, almost $5 billion are goodwill and other intangibles.

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GuruFocus has detected 2 Warning Signs with Saga Communications Inc $SGA.
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