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Sydnee Gatewood
Sydnee Gatewood
Articles (607) 

Chuck Royce’s Top 5 New Buys of the 2nd Quarter

Small-cap specialist’s largest new position is in analytics company

Chuck Royce (Trades, Portfolio), leader of Royce & Associates, disclosed 70 new positions when he released his second-quarter portfolio this week.

Specializing in small-cap stocks, the firm finds opportunities using an active, bottom-up, risk-conscious and fundamental approach. Like most value investors, Royce and his team like companies that are trading at a discount.

The guru’s five largest new buys for the quarter were comScore Inc. (NASDAQ:SCOR), Talos Energy Inc. (NYSE:TALO), Macom Technology Solutions Holdings Inc. (NASDAQ:MTSI), Tupperware Brands Corp. (NYSE:TUP) and nLight Inc. (NASDAQ:LASR).

ComScore

Royce invested in 1.2 million shares of comScore for an average price of $22.47 per share, allocating 0.18% of the equity portfolio to the stake.

The Virginia-based analytics company, which measures audiences, brands and consumer behavior across a number of industries, has a market cap of $1.08 billion; its shares were trading around $19.71 on Friday with a price-book ratio of 1.95 and a price-sales ratio of 2.73.

The median price-sales chart below shows the stock is trading below its historical value.

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GuruFocus rated comScore’s financial strength 5 out of 10 as it has low cash-to-debt and debt-to-equity ratios. In addition, the Altman Z-Score of -0.14 indicates the company is in danger of going bankrupt. The company’s profitability and growth did not fare as well, scoring a 1 of 10 rating as its margins and returns are negative and underperform industry competitors. One strong factor supporting the company is that it has a business predictability ranking of one out of five stars. GuruFocus says companies with this rank typically see their stock rise an average of 1.1% per year.

The guru holds 2.18% of comScore’s outstanding shares.

Talos Energy

The investor picked up 606,679 shares of Talos Energy for an average price of $36.12 per share, giving the position 0.13% space in the equity portfolio.

The oil and gas producer, which is headquartered in Houston, has a market cap of $1.89 billion; its shares were trading around $34.60 on Friday morning.

The company, which recently emerged from bankruptcy, combined with Stone Energy Corp. in May and subsequently listed on the New York Stock Exchange.

After an initial pop, the stock has stayed relatively flat since its debut.

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Royce holds 3.03% of Talos’ outstanding shares.

Macom Technology Solutions

Having previously closed a position in Macom in the fourth quarter of 2017, Royce opened a new 608,590-share holding for an average price of $21.23 per share. The trade had an impact of 0.1% on the equity portfolio.

Based in Lowell, Massachusetts, the company manufactures radio, microwave and millimeter wave semiconductor devices and components. With a market cap of $1.52 billion, its shares were trading around $23.3 on Friday. The stock has a forward price-earnings ratio of 21.32, a price-book ratio of 2.21 and a price-sales ratio of 2.60.

According to the median price-sales chart below, the stock is trading below its historical value.

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Macom’s financial strength was rated 5 out of 10 by GuruFocus as it has weak cash-to-debt and debt-to-equity ratios. In addition, the Altman Z-Score of 1.18 indicates the company is at risk of bankruptcy. The company’s profitability and growth was rated 6 out of 10. While the company’s margins and returns are negative and underperform industry peers, the Piotroski F-Score of 4 suggests operating conditions are stable.

With 0.93% of outstanding shares, Royce is the company’s largest guru shareholder. Ron Baron (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) also own the stock.

Tupperware

The guru purchased 319,600 shares of Tupperware for an average price of $43.89 per share, dedicating 0.09% of the equity portfolio to the position. He previously sold out of the stock in the third quarter of 2012.

The well-known direct-seller of kitchen and household products, which is based in Orlando, has a market cap of $1.72 billion; its shares were trading around $34.68 on Friday with a forward price-earnings ratio of 8.26 and a price-sales ratio of 0.82.

Based on the Peter Lynch chart below, the stock appears to be undervalued since it is trading below its fair value.

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GuruFocus rated Tupperware’s financial strength 5 out of 10. While the level of interest coverage meets Benjamin Graham’s minimum of 5, it falls below the industry average. The Altman Z-Score of 4.24, however, indicates the company is financially stable. Supported by an operating margin that outperforms 84% of competitors, the company’s profitability and growth scored a 4 out of 10 rating. The low Piotrsoki F-Score of 3, however, suggests poor business operations. The company also has a one-star business predictability rating.

Of the gurus invested in Tupperware, Wallace Weitz (Trades, Portfolio) has the largest position with 0.93% of outstanding shares. Joel Greenblatt (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Hotchkis & Wiley, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Jeremy Grantham (Trades, Portfolio), David Dreman (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) also hold the stock.

NLight

Royce bought 328,132 shares of nLight for an average price of $33.53 per share, expanding the equity portfolio 0.08%.

The Vancouver, Washington-based company, which makes semiconductor diode laser products, has a market cap of $1.11 billion; its shares were trading around $31.96 on Friday with a price-earnings ratio of 532.66 and a price-book ratio of 15.20. It went public in April.

The company’s stock price has risen since its initial public offering.

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GuruFocus rated nLight’s financial strength 6 out of 10 as it has good interest coverage. Despite having strong margins and returns, the company’s profitability and growth was rated 3 out of 10.

The guru holds 0.95% of the company’s outstanding shares.

Other trades

During the quarter, Royce also established positions in a number of other securities, including Universal Corp. (NYSE:UVV), SecureWorks Corp. (NASDAQ:SCWX), BANK OZK (NASDAQ:OZK), First Foundation Inc. (NASDAQ:FFWM) and Jeffries Financial Group Inc. (NYSE:JEF).

Royce’s $14.4 billion portfolio, which is composed of 1,213 holdings, is largely invested in the industrials sector, followed by the technology and consumer cyclical sectors. 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.

About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneeg

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