Schneider Capital Management opened three new positions, hitting on the undervalued stock of a small-cap natural gas company that has experienced a surge in revenue.
Famed small-cap investor Arnold Schneider (Trades, Portfolio) began the positions in a portfolio of $456 million in the final months of the year.
Schneider bought stock for cheap in U.S. Gold Corp. (USAU, Financial), with an eye on recent geochemical surveys that provided some promising results. U.S. Gold has seen years of earnings declines.
Range Resources Corp. (RRC, Financial) is a Fort Worth-based producer of natural gas. The company, which has seen explosive growth in revenue per share in the last 12 months, has its stock valued at an attractive $15 a share.
Schneider also invested in a company that doesn’t meet his small-cap profile. Bermuda-based Everest Re Group (RE, Financial) became a constituent of the S&P 500 last summer after being part of the S&P MidCap 400. It has a market cap of $10.68 billion.
Much of the asset manager’s strategy is focused on buying cheap companies that have intrinsic value and a market cap of less than $3 billion.
Schneider’s investments in small-cap companies are typically riskier than those of larger, more well-established companies. He’s had some down years, as well as some up ones.
But his recent record shows he’s on an upswing. His small-cap value fund finished the year, which ended Dec. 31, with a return of 12.25%, beating the Russell 200 Value Index of 7.84%.
2016 also was a good for the Pennsylvania-based asset manager. Schneider emerged in 2016 with fabulous gains after two consecutive years of fabulous losses. In 2016, he reported a whopping rate of return of 58.51% compared to the S&P 500’s 11.96%. In 2015, he reported a loss of 22.53% to the S&P’s gain of 1.38%. In 2014, he reported a loss of 11.75% to the S&P’s gain of 13.69%.
Schneider Capital’s portfolio is heavily weighted in energy stocks, which make up 37.6% of the portfolio. Financial services make up almost 30%. Industrials make up 10.3%, consumer cyclical, 6.7%; real estate 4.9%; and health care 4.4%.
As of the end of the third quarter, he had about 45 stocks in his portfolio.
Range Resources
Schneider bought 102,000 shares for an average price of $17.99 per share. The holding sits in 0.38% portfolio space. Since the purchase, the investment has experienced an estimated gain of 14%.
Range Resources generates revenue from natural gas, NGLs and oil sales. It focuses its work in the Marcellus Shale in Pennsylvania and Terryville Field in Louisiana. At the end of 2017, the company's proved reserves totaled 15.3 trillion cubic feet.
Natural gas represents 67% of production and reserves.
Range Resources has seen a revenue growth per share of 4.80% over the last 10 years. In the last 12 months, revenue per share has shot up by more than 83%.
In earnings per share, it reported $1.34 in 2017 after two consecutive years of losses of up to $2 a share.
Operating margins were in the black in 2017 at 49.80% after losses in the prior year.
The Peter Lynch chart suggests the company’s stock is undervalued at its sale price of over $15 a share. The median is $20 a share.
GuruFocus ranks it 4 out of 10 in financial strength and 6 of 10 in profitability and growth.
U.S. Gold
The hope is that Keystone will spark a gold rush.
Two days ago, the company announced its findings of geolochemical surveys that identified “the potential presence of a very large, robust, gold-bearing multi-metallic hydrothermal system at Keystone.”
U.S. Gold has a market cap of $26 million and focuses on projects in Nevada and Wyoming. Its properties include the Keystone project, Copper King and Gold Bar North.
Schneider bought 30,000 shares of U.S. Gold for an average price of $1.46 a share. His estimated gain so far is 25%.
The company’s revenue per share has been in dramatic decline over the last decade. Revenue per share of the gold miner was at more than $400 a share in 2005. This year, the company reported revenue per share of $19.12 compared to the prior year’s $80.20.
The company’s earnings per share have been gradually digging themselves out of the hole. In 2017, U.S. Gold finished off the year at a loss of $2.70 per share compared to a loss of $4.26 per share in the prior year. However, the numbers have been improving; losses in 2015 were six times that of 2016.
The company’s gross margins are in the black. In April 2016, the margin was at 16.86% compared to the prior year's 18.74%.
GuruFocus ranks U.S. Gold 6 of 10 in financial strength and 2 of 10 in profitability and growth.
Everest Re Group
Everest Re uses a distribution network to provide insurance and reinsurance. Its U.S. headquarters is in New Jersey. Schneider bought almost 10,000 shares of Everest Re for an average price of $225 a share. Shares sit in about 0.48% portfolio space.
The company has a market cap of $10 billion, which means it is not part of Schneider’s small-cap portfolio. It was added as a constituent of the S&P 500 index of stocks last summer after being part of the S&P MidCap 400.
The company has seen a steady growth in revenue over the years, but has experienced a drop in earnings per share and operating margins in recent years.
Gurufocus shows its revenues have been steadily growing, however, particularly over the last 12 months.
Its 10-year growth is 9.7%. Over the last 12 months, the company’s growth rate is 16.29%. Revenue growth per share peaked in December of last year at $161.70 a share, a steady climb from bottoming out at $56.94 during recessionary years in 2008 and 2009.
The company has seen a drop in earnings per share to $11.36 in 2017 from $23.68 the prior year. Its worst year in the last decade was in 2011 when earnings per share reportedly were a loss of $1.49.
Similar to its earnings per share, operating margins dropped in 2017 to 6.13% from a range of 19% to 27% over five years.
Total debt per share has been slowly rising over the last several years at about $15 a share. In 2013, it dropped to about $10 a share.
The Peter Lynch chart suggests Everest Group is overvalued at over $261 a share. The median is $167 a share.
GuruFocus ranks Everest Group 6 of 10 in financial strength and 5 of 10 in profitability and growth.
