Mariko Gordon (Trades, Portfolio), leader of Daruma Capital Management, released her first-quarter portfolio this week, listing nine new holdings.
According to the firm’s website, Daruma manages concentrated portfolios of small and mid-cap companies. Gordon believes the best time to buy a stock is not just when it offers good value, but when the firm can clearly identify catalysts that will send the price higher- for example, better-than-expected sales, earnings or cash flow growth.
Among the companies Daruma established positions in were Cubic Corp. (CUB, Financial), Boingo Wireless Inc. (WIFI, Financial), Novanta Inc. (NOVT, Financial), Atlas Air Worldwide Holdings Inc. (AAWW, Financial) and Kratos Defense & Security Solutions Inc. (KTOS, Financial).
Cubic
Gordon invested in 788,053 shares of Cubic for an average price of $60.92 per share, giving the holding 3.12% portfolio space.
The San Diego-based company, which provides systems and services to the transportation and defense markets, has a market cap of $1.91 billion; its shares were trading around $70.15 on Thursday with a forward price-earnings ratio of 185.19, a price-book ratio of 2.78 and a price-sales ratio of 1.35.
The Peter Lynch chart below shows the stock is trading higher than its fair value, suggesting it is overpriced.
Cubic’s financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. While the company has issued new long-term debt over the past several years, its Altman Z-Score of 4.08 indicates it is financially stable. In addition, the company’s operating margin has been in a five-year decline and underperforms 70% if its peers. Cubic also has a moderate Piotroski F-Score of 5 out of 9 and a business predictability rating of one star out of five.
With her purchased of 2.89% of its outstanding shares, Gordon became Cubic’s largest guru shareholder. Richard Pzena (Trades, Portfolio), Third Avenue Management (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Jim Simons (Trades, Portfolio), the FPA Capital Fund (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) also own the stock.
Boingo Wireless
The guru established a 1.8 million-share stake in Boingo for an average price of $24.63 per share, expanding the portfolio 2.92%.
The internet company, which is headquartered in Los Angeles, has a market cap of $857.23 million; its shares were trading around $20.50 on Thursday with a price-book ratio of 8.51 and a price-sales ratio of 3.79.
According to the chart below, the stock is expensive as it is trading above its historical median price-sales value.
GuruFocus rated Boingo’s financial strength 5 out of 10 as its Altman Z-Score of 1.55 indicates the company is under financial pressure, which means it could potentially face bankruptcy in the near future. Its profitability and growth fared a bit better, scoring 6 out of 10. While its operating margin is negative and underperforms 83% of competitors, its moderate Piotroski F-Score of 6 implies stable business operations.
Of the gurus invested in Boingo, Simons has the largest stake with 7.54% of outstanding shares. Joel Greenblatt (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) also established positions in the first quarter. Other guru shareholders are Columbia Wanger (Trades, Portfolio) and Chuck Royce (Trades, Portfolio).
Novanta
Gordon picked up 882,682 shares of Novanta for an average price of $54.79 per share, dedicating 2.87% of the portfolio to the holding.
The Bedford, Massachusetts-based company, which manufactures precision photonic and motion control components and subsystems, has a market cap of $2.18 billion; its shares were trading around $62.78 on Thursday with a price-earnings ratio of 114.18, a price-book ratio of 6.80 and a price-sales ratio of 3.97.
Based on the Peter Lynch chart below, the stock appears to be overvalued as it is trading above its fair value.
Novanta’s financial strength was rated 6 out of 10 by GuruFocus. While it has poor interest coverage, the company’s Altman Z-Score of 4.35 indicates it is financially healthy. The company’s profitability and growth received a 7 of 10 rating, boosted by an expanding operating margin, a moderate Piotroski F-Score of 5 and a one-star business predictability rating.
Simons is the company’s largest guru shareholder with 3.16% of outstanding shares. Greenblatt also established a position in the first quarter, while NWQ Managers (Trades, Portfolio) and Royce trimmed their holdings.
Atlas Air Worldwide
The investor purchased 746,994 shares of Atlas Air for an average price of $59.26 per share. The trade had an impact of 2.81% on the portfolio.
The cargo and passenger airplane lessor, which is headquartered in Purchase, New York, has a market cap of $1.76 billion; its shares were trading around $69.50 on Thursday with a price-earnings ratio of 8.19, a price-book ratio of 0.98 and a price-sales ratio of 0.80.
The Peter Lynch chart below suggests the stock is undervalued since it is trading significantly below its fair value.
GuruFocus rated Atlas Air’s financial strength 4 out of 10 as the company has issued new long-term debt over the past several years. In addition, its Altman Z-Score of 1.23 indicates it is at risk of going bankrupt. Its profitability and growth fared better, scoring 7 out of 10. While its operating margin has declined in recent years, it still outperforms 67% of competitors. In addition, the company has a moderate Piotroski F-Score of 6 and a one-star business predictability rating.
With 4.15% of outstanding shares, Ken Fisher (Trades, Portfolio) is the company’s largest guru shareholder. In addition to Gordon, Paul Tudor Jones (Trades, Portfolio) also established a position in the first quarter. Other guru shareholders are Richard Snow (Trades, Portfolio), Royce, Simons, Jeremy Grantham (Trades, Portfolio) and David Dreman (Trades, Portfolio).
Kratos Defense & Security Solutions
Gordon bought 3.5 million shares of Kratos for an average price of $11.14 per share, allocating 2.28% of the portfolio to the stake.
Headquartered in San Diego, the company, which provides advanced engineering, security and surveillance, information technology services and warfare solutions to government agencies, has a market cap of $1.14 billion; its shares were trading around $11.01 on Thursday with a forward price-earnings ratio of 70.42, a price-book ratio of 2.29 and a price-sales ratio of 1.46.
According to the Peter Lynch chart below, the stock is trading near its fair value.
Impacted by a low level of interest coverage, Kratos’ financial strength was rated 5 out of 10 by GuruFocus. In addition, the company’s low Altman Z-Score of 1.43 indicates it is at risk of going bankrupt. Its profitability and growth did not fare much better, scoring 4 out of 10 as its operating margin underperforms 72% of its peers. The company also has a moderate Piotroski F-Score of 6 and a one-star business predictability rating.
Gordon is the company’s largest shareholder among the gurus with 3.44% of outstanding shares. Royce also owns the stock.
Other trades
Gordon also established positions in FLIR Systems Inc. (FLIR, Financial), Zebra Technologies Corp. (ZBRA, Financial), Agnico Eagle Mines Ltd. (AEM, Financial) and Woodward Inc. (WWD, Financial) during the quarter.
The $1.6 billion portfolio, which is composed of 50 holdings, is largely invested in the industrials and technology sectors. According to its website, Daruma’s Small-Cap Composite fund underperformed the Russell 2000 in 2017 with a return of 12.24%. The index posted a 14.65% return.
Disclosure: No positions.
