Daruma Capital Management leader Mariko Gordon (Trades, Portfolio) disclosed nine new positions in her first-quarter portfolio last week.
Managing a concentrated portfolio of small and mid-cap stocks, the guru’s 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 that will send the price higher.
Based on this strategy, Gordon’s top five new buys for the quarter were Children’s Place Inc. (PLCE, Financial), Synovus Financial Corp. (SNV, Financial), Minerals Technologies Inc. (MTX, Financial), Brooks Automation Inc. (BRKS, Financial) and Bloomin Brands Inc. (BLMN, Financial).
Children’s Place
The guru invested in 294,810 shares of Children’s Place, dedicating 3.26% of the equity portfolio to the holding. The stock traded for an average price of $91.16 per share during the quarter.
The New Jersey-based retailer of children’s apparel and accessories has a $1.67 billion market cap; its shares were trading around $105.62 on Monday with a price-earnings ratio of 23.48, a price-book ratio of 6.07 and a price-sales ratio of 0.89.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Children’s Place’s financial strength 6 out of 10. Although the retailer has issued approximately $23.8 million in new long-term debt over the last three years, it is at a manageable level as a result of adequate interest coverage. The Altman Z-Score of 2.62, however, indicates the company is under some fiscal pressure.
The company’s profitability and growth scored a 7 out of 10 rating, driven by operating margin expansion, returns that are outperforming at least 79% of competitors and a moderate Piotroski F-Score of 6, which implies operations are stable. Children’s Place’s business predictability rank of one out of five stars, however, is on watch. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per year.
Of the gurus invested in Children’s Place, Chuck Royce (Trades, Portfolio) has the largest position with 3.96% of outstanding shares. During the quarter, Louis Moore Bacon (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Hotchkis & Wiley also established holdings. Jim Simons' (Trades, Portfolio) Renaissance Technologies and Pioneer Investments (Trades, Portfolio) added to their positions, while Joel Greenblatt (Trades, Portfolio) reduced his holding.
Synovus Financial
Gordon picked up 795,633 shares of Synovus Financial, allocating 3.11% of the equity portfolio to the position. During the quarter, the stock traded for an average price of $36.65 per share.
The commercial bank, which is headquartered in Columbus, Georgia, has a market cap of $5.42 billion; its shares were trading around $34.43 on Monday with a price-earnings ratio of 10.31, a price-book ratio of 1.27 and a price-sales ratio of 2.83.
According to the Peter Lynch chart, the stock is undervalued.
Synovus’ financial strength and profitability and growth were both rated 4 out of 10 by GuruFocus. The company has been weakened after issuing approximately $62.8 million in new long-term debt over the last three years.
Regardless, the bank is supported by a net margin and returns that outperform at least 65% of industry peers as well as a one-star business predictability rank.
With 0.58% of outstanding shares, Richard Pzena (Trades, Portfolio) is the company’s largest guru shareholder. Bacon, Mario Gabelli (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Greenblatt also established positions during the quarter. Caxton Associates (Trades, Portfolio) added to its holding.
Minerals Technologies
The investor purchased 379,562 shares of Minerals Technologies, giving it 2.54% space in the equity portfolio. Shares traded for an average price of $57.06 during the quarter.
The New York-based company, which produces and sells a range of specialty mineral, mineral-based and synthetic mineral products, has a $1.97 billion market cap; its shares were trading around $56.14 on Monday with a price-earnings ratio of 11.74, a price-book ratio of 1.42 and a price-sales ratio of 1.09.
Based on the Peter Lynch chart, the stock appears to be undervalued.
GuruFocus rated Minerals Technologies’ financial strength 6 out of 10. Although the company has sufficient interest coverage, the Altman Z-Score of 2.5 suggests it is under some fiscal stress.
The company’s profitability and growth scored a 7 out of 10 rating, boosted by an expanding operating margin, strong returns, consistent revenue and earnings growth and a moderate Piotroski F-Score of 6. Minerals Technologies also has a three-star business predictability rank. According to GuruFocus, companies with this rank typically see their stocks gain an average of 8.2% per year.
Royce is the company’s largest guru shareholder with 4.38% of outstanding shares. During the quarter, Gabelli, Hotchkis & Wiley and Greenblatt added to their holdings, while Simons’ firm trimmed its position.
Brooks Automation
Gordon bought a 700,377-share holding of Brooks Automation, expanding the equity portfolio 2.34%. During the quarter, shares traded for an average price of $30.05.
The semiconductor manufacturing company, which is headquartered in Chelmsford, Massachusetts, has a market cap of $2.61 billion; its shares were trading around $36.20 on Monday with a price-earnings ratio of 50.24, a price-book ratio of 3.58 and a price-sales ratio of 4.24.
The Peter Lynch chart suggests the stock is overvalued.
Weighed down by poor interest coverage, Brooks Automation’s financial strength was rated 5 out of 10 by GuruFocus. In addition, the Altman Z-Score of 1.88 indicates the company is under some fiscal pressure.
The company’s profitability and growth fared a bit better, scoring a 6 out of 10 rating. On top of strong margins and returns that outperform competitors, the company is supported by a moderate Piotroski F-Score of 4 and a one-star business predictability rank.
Of the gurus invested in Brooks Automation, investment firm Barrow, Hanley, Mewhinney & Strauss has the largest stake with 3.85% of outstanding shares. Fisher also established a position during the quarter, while Royce curbed his holding.
Bloomin Brands
The guru invested in 927,381 shares of Bloomin Brands, impacting the equity portfolio by 2.16%. The stock traded for an average price of $19.89 per share during the quarter.
The Tampa, Florida-based restaurant operator, whose brands include Carrabba’s Italian Grill, Outback Steakhouse and Bonefish Grill, has a $1.86 billion market cap; its shares were trading around $20.27 on Monday with a price-earnings ratio of 18.20, a price-book ratio of 7.80 and a price-sales ratio of 0.46.
According to the Peter Lynch chart, the stock is overvalued.
GuruFocus rated Bloomin Brands’ financial strength 5 out of 10. Weakened by poor interest coverage and a slowdown in revenue per share growth over the last 12 months, the Altman Z-Score of 1.17 warns the company is in danger of going bankrupt.
The company’s profitability and growth scored a 6 out of 10 rating. Although the operating margin is in decline, the company’s returns are outperforming industry peers. Bloomin Brands also has a moderate Piotroski F-Score of 6.
With her purchase of 1.01% of outstanding shares, Gordon is now Bloomin’s largest guru shareholder. During the quarter, Lee Ainslie (Trades, Portfolio), Cohen and Greenblatt also established positions, while Jeremy Grantham (Trades, Portfolio), Simons’ firm and Richard Snow (Trades, Portfolio) boosted their holdings.
Additional trades
During the quarter, Gordon also opened positions in Bottomline Technologies Inc. (EPAY, Financial), Kemet Corp. (KEM, Financial), Chart Industries Inc. (GTLS, Financial) and Brunswick Corp. (BC, Financial).
The $879.34 million equity portfolio, which is composed of 50 stocks, is largely invested in the technology and industrials sectors. According to Daruma’s website, the Small-Cap Composite Fund returned -19.13% in 2018, underperforming the Russell 2000 Index’s -11.01% return.
Disclosure: No positions.
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