Royce & Associates leader Chuck Royce (Trades, Portfolio) disclosed several changes he made to his portfolio on June 30.
The firm, which specializes in small-cap stocks, uses an active, bottom-up, risk-conscious and fundamental approach to find companies trading at a discount to enterprise value.
According to GuruFocus real-time picks, the New York-based firm expanded its stake in Circor International Inc. (CIR, Financial), lost its Layne Christensen Co. (LAYN, Financial) holding and bought preferred shares of Chicken Soup for the Soul Entertainment Inc. (CSSEP.PFD, Financial).
Circor International
Royce invested in 348,814 shares of Circor for an average price of $39.96 per share, expanding the stake by 18.32%. He now owns over 2.25 million shares, representing 0.58% of his portfolio. GuruFocus estimates he has lost 16% on his investment since the second quarter of 2013.
In early June, the company announced a public offering of common stock for a purchase price of $44.25 per share.
The Burlington, Massachusetts-based industrial company, which manufactures valves and other highly engineered products, has a market cap of $754.39 million; its shares were trading around $38.04 on Thursday, up 0.79%, with a price-book ratio of 1.29 and a price-sales ratio of 0.84.
The Peter Lynch chart below shows the stock is trading higher than its fair value, suggesting it is overpriced.
GuruFocus rated Circor’s financial strength 4 out of 10. The company has issued approximately $810.23 million in new long-term debt over the past three years, which has hurt its financial position. Further, the Altman Z-Score of 1.12 indicates the company could face bankruptcy in the near future.
Its profitability and growth scored a 3 of 10 rating. Not only is the company’s operating margin declining, but the Piotroski F-Score of 2 implies poor business operations. The company also has a business predictability rating of one out of five stars. According to GuruFocus, stocks with this rating typically see an average increase of 1.1% per year.
With 11.36% of outstanding shares, Royce is the company’s largest guru shareholder. Mario Gabelli (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio) also own the stock.
Layne Christensen
The guru’s stake in Layne Christensen was dissolved when the company was acquired by Granite Construction Inc. (GVA, Financial) on June 14.
According to the terms of the stock-for-stock deal, which was valued at $536 million, shareholders of The Woodlands, Texas-based global water management, infrastructure services and drilling company received 5.62 million shares of Granite stock, which represent roughly 12% of the California-based company’s outstanding shares. Layne clarified in its press release that its shareholders received 0.27 Granite shares per share owned.
Before the deal closed, the investor had held shares of Layne Christensen since before the second quarter of 2012. Other gurus who owned the stock were Arnold Van Den Berg (Trades, Portfolio), Gabelli and Jim Simons (Trades, Portfolio).
Chicken Soup for the Soul Entertainment
Royce purchased 80,000 preferred shares of Chicken Soup for the Soul Entertainment for an average price of $25 per share, giving the position 0.01% portfolio space.
The company announced the offering of 1 million shares of series A redeemable perpetual preferred stock on June 13. In addition to general corporate purposes, the proceeds of this offering will be used to fund potential mergers and acquisitions.
The media company, which is headquartered in Connecticut, has a market cap of $109.37 million; its common shares (CSSE, Financial) were trading around $9.42 on Tuesday, up 1.73%, with a price-earnings ratio of 4.32, a price-book ratio of 2.01 and a price-sales ratio of 7.37.
Based on the Peter Lynch chart below, the stock appears to be trading significantly below its fair value.
The company, which produces television and online video programs, has a financial strength rating of 8 out of 10. While Chicken Soup for the Soul’s interest coverage falls below Benjamin Graham’s standard of 5, its Altman Z-Score of 11.83 indicates it is financially strong.
The company’s profitability and growth was rated 3 out of 10 by GuruFocus. The company’s margins and returns underperform the majority of competitors in its industry. GuruFocus also warns that its Sloan ratio suggests poor earnings quality.
Royce is the only guru holding preferred shares.
Portfolio
Royce’s vast portfolio of 1,253 holdings is largely invested in the industrials sector, followed by the technology and consumer cyclical sectors.
The firm’s five largest holdings as of the first quarter are Children’s Place Inc. (PLCE, Financial), Vishay Intertechnology Inc. (VSH, Financial), Sun Hydraulics Corp. (SNHY, Financial), AVX Corp. (AVX, Financial) and UniFirst Corp. (UNF, Financial).
According to its fact sheet, the Royce Premiere Fund returned 23.85% in 2017, outperforming the Russell 2000’s 14.65% return.
Disclosure: No positions.
