Daruma Capital Management leader Mariko Gordon (Trades, Portfolio) disclosed she established seven new positions when she released her fourth-quarter 2018 portfolio earlier this week.
Managing a concentrated portfolio of small and mid-cap stocks, the New York-based firm says on its website that it believes the best time to invest in a company is not just when it offers good value, but also when clear catalysts can be identified, which will send the price higher.
Based on these criteria, Gordon’s top five new buys for the quarter were Tandem Diabetes Care Inc. (TNDM, Financial), Macom Technology Solutions Holdings Inc. (MTSI, Financial), Insulet Corp. (PODD, Financial), LHC Group Inc. (LHCG, Financial) and Cloudera Inc. (CLDR, Financial).
Tandem Diabetes Care
Gordon invested in 489,957 shares of Tandem Diabetes for an average price of $35.17 per share, allocating 2.52% of the equity portfolio to the holding.
The San Diego-based medical device manufacturer, which produces insulin pumps, has a $2.83 billion market cap; its shares were trading around $50.61 on Friday with a price-book ratio of 24.47 and a price-sales ratio of 7.
The median price-sales chart shows the stock is trading near its historical value.
Supported by no long-term debt and a robust Altman Z-Score of 16.64,GuruFocus rated Tandem’s financial strength 7 out of 10. The company’s profitability and growth did not fare as well, scoring a 2 out of 10 rating. Although the operating margin is expanding, the company is weakened by poor returns and declining revenue per share. It also has a Piotroski F-Score of 5, which suggests business conditions are stable.
Of the gurus invested in Tandem, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest stake with 2.46% of outstanding shares. Steven Cohen (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) are also shareholders.
Macom Technology Solutions
The guru picked up 923,026 shares of Macom Technology for an average price of $16.07 per share, dedicating 1.78% of the equity portfolio to the position.
The semiconductor manufacturer, which is based in Massachusetts, has a market cap of $1.14 billion; its shares were trading around $17.57 on Friday with a forward price-earnings ratio of 36.90, a price-book ratio of 1.74 and a price-sales ratio of 1.92.
The median price-sales chart shows the stock is trading below its historical value.
Weighed down by debt and declining revenue per share, Macom’s financial strength was rated 5 out of 10 by GuruFocus. In addition, the low Altman Z-Score of 0.85 warns the company is at risk of bankruptcy. The company’s profitability and growth scored a 6 out of 10 rating despite having negative margins and returns that underperform competitors as well as a low Piotroski F-Score of 3, which indicates poor operating conditions.
With 1.54% of outstanding shares, Chuck Royce (Trades, Portfolio) is the company’s largest guru shareholder. Gordon holds 1.41%.
Insulet
Having exited a position in Insulet in the second quarter of 2016, Gordon entered a new 34,260-share holding for an average price of $84.01 per share. The trade had an impact of 0.36% on the equity portfolio.
The Massachusetts-based medical device manufacturer, which focuses on treatments for diabetes, has a $5.19 billion market cap; its shares were trading around $88.30 on Friday with a forward price-earnings ratio of 227.27, a price-book ratio of 26.23 and a price-sales ratio of 9.80.
The median price-sales chart shows the stock is trading above its historical value.
GuruFocus rated Insulet’s financial strength 5 out of 10. Although the company has poor interest coverage, the Altman Z-Score of 4.28 indicates the company is in good fiscal standing. The company’s profitability and growth scored a 6 out of 10 rating, driven by operating margin expansion, returns that outperform industry peers, a moderate Piotroski F-Score of 5 and a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per year.
PRIMECAP Management (Trades, Portfolio) is the company’s largest guru shareholder with 8.25% of outstanding shares. Other guru investors are the Vanguard Health Care Fund (Trades, Portfolio), Simons’ firm, Pioneer Investments (Trades, Portfolio), Cohen, Paul Tudor Jones (Trades, Portfolio) and Ron Baron (Trades, Portfolio).
LHC Group
The investor purchased 26,392 shares of LHC Group for an average price of $95.55 per share, giving it 0.33% space in the equity portfolio.
The home health care services company, which is headquartered in Louisiana, has a market cap of $3.53 billion; its shares were trading around $113.02 on Friday with a price-earnings ratio of 44.55, a price-book ratio of 2.69 and a price-sales ratio of 1.72.
The Peter Lynch chart shows the stock is trading higher than its fair value, suggesting it is overpriced.
LHC’s financial strength and profitability and growth were both rated 7 out of 10 by GuruFocus. Although the company has issued approximately $43.2 million in new long-term debt over the last three years, it is at a manageable level due to adequate interest coverage. In addition, the Altman Z-Score of 5.28 indicates the company is in good fiscal health. Despite the operating margin declining at a rate of 1.1% per annum over the last five years, it still outperforms 51% of competitors. The company is also supported by strong returns, a moderate Piotroski F-Score of 4 and a one-star business predictability rank, which is on watch as a result of assets building at a faster rate than revenue.
Of the guru’s invested in LHC, Cohen has the largest holding with 0.26% of outstanding shares. Ken Fisher (Trades, Portfolio) and Greenblatt are also shareholders.
Cloudera
Gordon bought a 210,741-share holding of Cloudera for an average price of $13.14 per share, expanding the equity portfolio 0.31%.
The California-based software company has a $3.62 billion market cap; its shares were trading around $13.82 on Friday with a price-book ratio of 7.38 and a price-sales ratio of 4.70.
The median price-sales chart shows the stock is trading below its historical value.
Driven by good interest coverage, no long-term debt and a high Altman Z-Score of 3.87, GuruFocus rated Cloudera’s financial strength 8 out of 10. The company’s profitability and growth did not fare as well, scoring a 2 out of 10 rating as a result of negative margins and returns that underperform industry peers.
Simons’ firm is the company’s largest shareholder among the gurus, holding 1.81% of outstanding shares. Jones, Cohen and Chase Coleman (Trades, Portfolio) also own the stock.
Additional trades
During the quarter, Gordon also established positions in New York-based Etsy Inc. (ETSY, Financial), which is an online marketplace for handmade goods, as well as vintage and antique items, and Tulsa, Oklahoma-based oil and gas producer WPX Energy Inc. (WPX, Financial).
The guru’s $750.9 million equity portfolio, which is composed of 50 holdings, is largely invested in the industrials and technology sectors.
Disclosure: No positions.
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