Chuck Royce Trims Hardinge, CSS Industries Positions

Guru also boosts stake in FreightCar America

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Apr 11, 2018
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Small-cap specialist Chuck Royce (Trades, Portfolio) disclosed this week his firm, Royce & Associates, reduced two positions and boosted another on March 31.

Royce, who invests in smaller companies that are trading at a discount to enterprise value, trimmed his positions in Hardinge Inc. (HDNG, Financial) and CSS Industries Inc. (CSS, Financial) and added to his FreightCar America Inc. (RAIL, Financial) stake.

Hardinge

According to GuruFocus real-time picks, Royce reduced his Hardinge position by 86.51%, selling 907,070 shares for an average price of $18.32 per share. The trade had an impact of -0.11% on the portfolio. He now owns 141,484 shares.

GuruFocus estimates the firm has gained 51% on the investment since the first quarter of 2015.

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The Elmira, New York-based machine tool manufacturer has a market cap of $237.28 million; its shares were trading around $18.31 on Wednesday morning, up 0.05%, with a price-earnings ratio of 40.67, a price-book ratio of 1.32 and a price-sales ratio of 0.75.

The Peter Lynch chart below shows the stock is trading above its fair value, suggesting it is overpriced.

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As the company has no debt and a high Altman Z-Score of 3.07, GuruFocus rated Hardinge’s financial strength 8 out of 10. Despite having a strong Piotroski F-Score of 8 and a one-star (out of five) business predictability rating, the company’s profitability and growth was rated 5 of 10 as its operating margin underperforms 70% of competitors.

Having reduced his position, Royce now holds 1.09% of the company’s outstanding shares. Jim Simons (Trades, Portfolio) holds 2.55%.

CSS Industries

The guru trimmed his CSS Industries holding by 79.42%, selling 687,016 shares for an average price of $17.50 per share. The trade had an impact of -0.08% on the portfolio. Royce now owns 178,054 shares.

The firm has not fared as well with CSS Industries. According to GuruFocus, the firm has lost an estimated 28% on the investment since the second quarter of 2015.

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The Philadelphia-based greeting card company has a market cap of $161.33 million; its shares were trading around $17.69, down 0.49%, on Wednesday morning with a forward price-earnings ratio of 13.26, a price-book ratio of 0.56 and a price-sales ratio of 0.47.

According to the Peter Lynch chart below, the stock is undervalued as it is trading below its fair value.

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CSS Industries’ financial strength was rated 6 out of 10 by GuruFocus, boosted by a strong Altman Z-Score of 3.18. Its profitability and growth, however, was rated 4 of 10 as it has a low Piotroski F-Score of 3 and declining operating margins. It also has a one-star business predictability rating.

Royce is still the company’s largest guru shareholder with 1.95% of outstanding shares. Charles Brandes (Trades, Portfolio), Simons and Hotchkis & Wiley also own the stock.

FreightCar America

Royce boosted his stake in FreightCar America by 7.9%, buying 92,998 shares for an average price of $13.40 per share. The trade expanded the portfolio 0.01%. He now owns nearly 1.3 million shares.

GuruFocus data shows the firm has lost an estimated 6% on the investment since the third quarter of 2014.

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The Chicago-based manufacturer of railcars has a market cap of $166.18 million; its shares were trading around $13.35 on Wednesday morning, down 0.22%, with a price-book ratio of 0.70 and a price-sales ratio of 0.41.

Based on the Peter Lynch chart below, the stock is overpriced as it is trading higher than its fair value.

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GuruFocus rated FreightCar’s financial strength 8 out of 10 because it has no debt and a strong Altman Z-Score. Its profitability and growth did not fare quite as well with a rating of 3 out of 10. The company’s declining operating margin and moderate Piotroski F-Score of 4 contributed to the low ranking. In addition, it has a one-star business predictability rating.

With 10.21% of outstanding shares, Royce is the company’s largest shareholder among the gurus. Simons and Prem Watsa (Trades, Portfolio) are also shareholders.

Performance

Royce’s vast portfolio of 1,246 stocks is largely composed of securities in the industrials sector. According to its fact sheet, the Royce Premier Fund returned 23.85% in 2017, outperforming the Russell 2000’s 14.65% return.

Disclosure: No positions.