Ariel Investments founder John Rogers (Trades, Portfolio) disclosed this week that he exited his stake in Contango Oil & Gas Co. (MCF, Financial) and boosted his positions in Edgewater Technology Inc. (EDGW, Financial) and Strattec Security Corp. (STRT, Financial) on June 30.
Relying on a long-term approach, Rogers and his team pick a concentrated number of small and medium-sized companies that are undervalued. The firm also looks for high barriers to entry, sustainable competitive advantages and predictable fundamentals.
Contango
According to GuruFocus real-time picks, the guru sold 4.19 million shares of Contango for an average price of $5.68 per share. The trade had an impact of -0.17% on the portfolio.
GuruFocus estimates he has lost 81% on the investment since the first quarter of 2012.
The Houston-based oil and gas producer has a market cap of $161.42 million; its shares were trading around $6.31 on Thursday, up 0.32%, with a price-book ratio of 0.72 and a price-sales ratio of 1.96.
The price-sales chart below shows the stock is trading below its historical average.
GuruFocus rated Contango’s financial strength 4 out of 10 as its Altman Z-Score of 0.77 indicates it is at risk of going bankrupt. GuruFocus also notes that revenue per share has been declining for the past several years, from $14.51 in 2014 to $3.18 in 2017.
The company’s profitability and growth scored a 5 out of 10 rating. While its operating margin is negative and underperforming 68% of competitors, the Piotroski F-Score of 5 implies operations are stable. Contango also has a business predictability rating of one out of five stars. According to GuruFocus, companies that have this rating typically gain 1.1% per year on average.
No gurus currently hold the stock, as Jim Simons (Trades, Portfolio) and Howard Marks (Trades, Portfolio) recently closed their positions as well.
Edgewater Technology
Rogers increased his Edgewater Technology holding by 22%, buying 503,110 shares for an average price of $5.42 per share. He now holds roughly 2.8 million shares, which represent 0.17% of his portfolio.
GuruFocus estimates he has gained 11% on the investment since the first quarter of 2013.
The information technology consulting company, which is headquartered in Massachusetts, has a market cap of $81.9 million; its shares were trading around $5.60 on Thursday, down 1.58%, with a price-book ratio of 1.54 and a price-sales ratio of 0.73.
According to the price-sales chart below, the stock is trading near its historical average.
Edgewater’s financial strength was rated 7 out of 10 by GuruFocus. While the company has no debt, its Altman Z-Score of 2.5 indicates it is under some financial pressure as it revenue per share has declined in recent years. The company’s Sloan ratio also implies poor earnings quality.
The company’s profitability and growth did not fare as well, scoring 4 out of 10, as its operating margin, which is negative, underperforms 70% of industry peers. In addition, the Piotroski F-Score of 2 indicates poor business operations. It also has a one-star business predictability rating, which is on watch, meaning its business or industry fundamentals may soon change.
With 19.38% of outstanding shares, Rogers is the company’s largest guru shareholder. Mario Gabelli (Trades, Portfolio) and Simons also own the stock.
Strattec Security
The investor expanded his position in Strattec by 17.99%, purchasing 56,700 shares for an average price of $30.55 per share. He now holds 371,796 shares, representing 0.13% of his portfolio.
GuruFocus estimates he has lost 22% on the investment since the first quarter of 2016.
Headquartered in Wisconsin, the manufacturer of lock systems for automobiles has a market cap of $113.41 million; its shares were trading around $30.58 on Thursday, down 0.08%, with a price-earnings ratio of 11.21, a price-book ratio of 0.70 and a price-sales ratio of 0.26.
Based on the Peter Lynch chart below, the stock appears to be undervalued since it is trading below its fair value.
Strattec Security’s financial strength was rated 7 out of 10 by GuruFocus. While the company has issued $37 million in new long-term debt over the past several years, it is still at a manageable level. In addition, the Altman Z-Score of 3.49 indicates it is financially strong.
The company’s profitability and growth was rated 6 out of 10. While the operating margin has been declining over the past several years, the Piotroski F-Score of 5 implies business conditions are stable. Strattec also has a one-star business predictability rating.
Of the gurus invested in Strattec, Rogers has the largest position. Gabelli, Simons and Chuck Royce (Trades, Portfolio) are also shareholders.
Performance
Rogers’ portfolio is largely invested in the financial services sector, followed by consumer cyclical and industrials stocks.
According to the firm’s website, the Ariel Fund has returned 3.05% year to date. In comparison, the S&P 500 has posted a 2.65% return over the same period.
Disclosure: No positions.
