John Rogers founded his money management firm Ariel Capital Management LLC back 1983. He specializes in investing in stocks of small and medium-sized companies whose share prices are undervalued. His fund seeks to purchase companies whose prospects include high barriers to entry, sustainable competitive advantages, and predictable fundamentals that allow for double digit cash earnings growth. Rogers purchases companies when they are trading at a low valuation relative to potential earnings (p/e less than 13x forward cash earnings) and/or a low valuation relative to intrinsic worth (40% discount to private market value - PMV).
As any legitimate value investor will tell you, things do not always go in their way. Rogers also had his bumps. In the first half of past decade, he not only successfully avoided the internet bubble, but also thrived during the burst. Then, he had a couple of years of underperformance, especially in 2008 when Ariel Fund lost 48%. Investors fled the fund and left him with a tiny fraction of funds to manage. Then in 2009, his fund returned 63%. The investors redeemed from his fund at the bottom of the market must regret trying to outsmart the market and John Rogers.
The net truth is, for the past ten year through March 31, 2010, Ariel Fund returned an average of 8.66%, beating the S&P 500 by a large margin. Rogers had some good years and some bad years. Overall, his fund is a success story of value investing.
Recently, John Rogers appeared in Steve Forbes’s Intelligent Investing program:
The transcript is attached at the end of this article.
In the interview, Steve Forbes asked John Rogers to define his value investing as he practices. Here is Rogers’s answer:
So next time when you see Rogers buys a stock, you will know that at time of his purchase and as far as he can see, the stock is at at least 40% discount from the intrinsic value.
Also in the interview, Rogers discussed his valuation process and a few other qualitative factors to consider when considering an stock for investment:
As March 31, 2010, Rogers held $5.24 billion in 105 stocks. Here are the top ones, together with the comments made by Rogers in the Forbes interview:
No. 1: Jones Lang LaSalle Inc. (JLL, Financial), Weightings: 4.16% - 2,992,310 Shares
Jones Lang Lasalle, Inc. is a full-service real estate firm that provides management services, corporate and financial services and investment management services to corporations and other real estate owners, users and investors worldwide. Jones Lang Lasalle Inc. has a market cap of $2.96 billion; its shares were traded at around $70.44 with a P/E ratio of 28.2 and P/S ratio of 1.1. The dividend yield of Jones Lang Lasalle Inc. stocks is 0.3%. Jones Lang Lasalle Inc. had an annual average earning growth of 13.9% over the past 10 years. GuruFocus rated Jones Lang Lasalle Inc. the business predictability rank of 2.5-star.
In the Forbes interview, Rogers commented on Jones Lang LaSalle Inc. (JLL) and CB Richard Ellis Group Inc. (CBG, Financial):
CB Richard Ellis is the No. 5 top holding.
Rogers sold about 150,000 shares, a very small portion of his position in this stock. He has been holding this stock for a long time and traded in and out of this stock since before 2001.
No. 2: Gannett Co. Inc. (GCI, Financial), Weightings: 4.15% - 13,154,168 Shares
Gannett Co., Inc. is an international news and information company that publishes daily newspapers in the USA, including USA TODAY, the nation's largest-selling daily newspaper. Gannett Co. Inc. has a market cap of $3.82 billion; its shares were traded at around $16.04 with a P/E ratio of 7.5 and P/S ratio of 0.6. The dividend yield of Gannett Co. Inc. stocks is 1%.
GuruFocus columnist Mike Covello wrote an article entitled Why John Rogers of Ariel Capital Managemnent own 13% of Gannett last year. He highlighted that the investors missed the value created by Career Builder, Gannett’s job searching site.
In the Forbes interview, Rogers discussed Gannett and media company extensively:
Despite the positive view of Rogers, he has been selling the stock for the past couple of quarters. In the recent 1Q10, he sold about 700,000 shares. Click here for his holding history of this stock.
No. 3: Hewitt Associates Inc. (HEW, Financial), Weightings: 3.91% - 5,149,559 Shares
Hewitt Associates is a global provider of human resources outsourcing and consulting services. Hewitt Associates Inc. has a market cap of $3.29 billion; its shares were traded at around $35.35 with a P/E ratio of 12.5 and P/S ratio of 1.1.
Rogers seems to like service companies, as he commented in the Forbes interview:
Rogers held this stock for a long time. Back in 2Q07, he held as much as 19.4 million shares. In the recent quarter, he sold 340,000 shares. Click here for his holding history of this stock.
No. 4: The Interpublic Group of Companies Inc. (IPG, Financial), Weightings: 3.82% - 24,068,677 Shares
The Interpublic Group of Companies, Inc.'s is one of the world's organizations of advertising agencies and marketing services companies. The Interpublic Group Of Companies Inc. has a market cap of $3.9 billion; its shares were traded at around $7.98 with a P/E ratio of 33.2 and P/S ratio of 0.6.
Rogers held this stock for a long time. In the recent quarter, he sold about 550,000 shares. Click here for his holding history of this stock.
No. 5: CB Richard Ellis Group Inc. (CBG), Weightings: 3.39% - 11,201,164 Shares
CB Richard Ellis Group is a global commercial real estate services firm offering a full range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other commercial real estate assets. Cb Richard Ellis Group Inc. has a market cap of $4.79 billion; its shares were traded at around $14.89 with a P/E ratio of 36.4 and P/S ratio of 1.1.
Rogers held stock since 3Q09. He has sold a little over 700,000 shares of this stock in 1Q10. Click here for his holding history of this stock.
No. 6: Janus Capital Group Inc. (JNS, Financial), Weightings: 3.34% - 12,232,547 Shares
Janus Capital Group Inc. is a asset manager offering individual investors and institutional clients complementary asset management disciplines through the firm's global distribution network. Janus Capital Group Inc. has a market cap of $1.95 billion; its shares were traded at around $10.6 with a P/E ratio of 15.7 and P/S ratio of 2.3. The dividend yield of Janus Capital Group Inc. stocks is 0.4%.
Rogers likes money management firms as he commented in the Forbes interview:
Conclusion
Rogers found value in media, real estate services, and financials in the stock market.
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Appendix
John Rogers Briefing Book
As any legitimate value investor will tell you, things do not always go in their way. Rogers also had his bumps. In the first half of past decade, he not only successfully avoided the internet bubble, but also thrived during the burst. Then, he had a couple of years of underperformance, especially in 2008 when Ariel Fund lost 48%. Investors fled the fund and left him with a tiny fraction of funds to manage. Then in 2009, his fund returned 63%. The investors redeemed from his fund at the bottom of the market must regret trying to outsmart the market and John Rogers.
Performance of Ariel Fund
| Year | Return (%) | S&P500 (%) | Excess Gain (%) |
|---|---|---|---|
| 2009 | 63.42 | 26.5 | 36.9 |
| 2008 | -48.25 | -37 | -11.2 |
| 2007 | -1.7 | 5.61 | -7.3 |
| 2006 | 10.35 | 15.79 | -5.4 |
| 2005 | 0.93 | 4.91 | -4.0 |
| 2004 | 21.97 | 12 | 10.0 |
| 2003 | 28.04 | 28.7 | -0.7 |
| 2002 | -5.18 | -22.1 | 16.9 |
| 2001 | 14.21 | -11.9 | 26.1 |
| 2000 | 28.76 | -9.1 | 37.9 |
| 1999 | -5.76 | 21 | -26.8 |
The net truth is, for the past ten year through March 31, 2010, Ariel Fund returned an average of 8.66%, beating the S&P 500 by a large margin. Rogers had some good years and some bad years. Overall, his fund is a success story of value investing.
Recently, John Rogers appeared in Steve Forbes’s Intelligent Investing program:
The transcript is attached at the end of this article.
In the interview, Steve Forbes asked John Rogers to define his value investing as he practices. Here is Rogers’s answer:
Well, for us, value investing means buying really great companies while they're out of favor, while there's something going on, whether there's a cloud over that company, and it makes the stock price, we think, cheap relative to underlying value. So for us, we want to find stocks that are selling at about a 40% discount to that underlying value. And we think if we can get a 40% discount, that really defines it as a value stock to us.
So next time when you see Rogers buys a stock, you will know that at time of his purchase and as far as he can see, the stock is at at least 40% discount from the intrinsic value.
Also in the interview, Rogers discussed his valuation process and a few other qualitative factors to consider when considering an stock for investment:
Rogers: Well, from a valuation standpoint, you know, the low P/E multiples, much the kind of work that David Dreman made famous with contrarian investment strategy. We love low P/Es. We also want to do the discounted cash flow analysis that most business school students learn to be able to look to the future and see the cash flows and discount them back. And then we look at transactions that have occurred in that specific industry, what companies have been sold for either in the private equity market or to strategic buyers.
And you've got to make sure, though, that even though the stock's cheap, that it really is a wonderful business, where there really are barriers to entry, a real moat around the company which makes it hard for new people to come in and compete.
As March 31, 2010, Rogers held $5.24 billion in 105 stocks. Here are the top ones, together with the comments made by Rogers in the Forbes interview:
No. 1: Jones Lang LaSalle Inc. (JLL, Financial), Weightings: 4.16% - 2,992,310 Shares
Jones Lang Lasalle, Inc. is a full-service real estate firm that provides management services, corporate and financial services and investment management services to corporations and other real estate owners, users and investors worldwide. Jones Lang Lasalle Inc. has a market cap of $2.96 billion; its shares were traded at around $70.44 with a P/E ratio of 28.2 and P/S ratio of 1.1. The dividend yield of Jones Lang Lasalle Inc. stocks is 0.3%. Jones Lang Lasalle Inc. had an annual average earning growth of 13.9% over the past 10 years. GuruFocus rated Jones Lang Lasalle Inc. the business predictability rank of 2.5-star.
In the Forbes interview, Rogers commented on Jones Lang LaSalle Inc. (JLL) and CB Richard Ellis Group Inc. (CBG, Financial):
Well, some of our favorite, you know, companies where we think have a real moat, we think companies like in the real estate services industry, companies like CB Richard Ellis and Jones Lang LaSalle, they are by far the two giants when it comes to real estate services, leasing, transactions, when it comes to outsourcing, they have the global scale to do it really, really well and have all the synergies between the various aspects of all their operations.
CB Richard Ellis is the No. 5 top holding.
Rogers sold about 150,000 shares, a very small portion of his position in this stock. He has been holding this stock for a long time and traded in and out of this stock since before 2001.
No. 2: Gannett Co. Inc. (GCI, Financial), Weightings: 4.15% - 13,154,168 Shares
Gannett Co., Inc. is an international news and information company that publishes daily newspapers in the USA, including USA TODAY, the nation's largest-selling daily newspaper. Gannett Co. Inc. has a market cap of $3.82 billion; its shares were traded at around $16.04 with a P/E ratio of 7.5 and P/S ratio of 0.6. The dividend yield of Gannett Co. Inc. stocks is 1%.
GuruFocus columnist Mike Covello wrote an article entitled Why John Rogers of Ariel Capital Managemnent own 13% of Gannett last year. He highlighted that the investors missed the value created by Career Builder, Gannett’s job searching site.
In the Forbes interview, Rogers discussed Gannett and media company extensively:
Forbes: Well, you take a company like Gannett, went down to what, five dollars a shareor something and what's it's now, $15, $18 a share?
Rogers: Well, I think it actually got under two dollars. I think it got to about $1.70. About one times earnings, which made no sense to us when you looked at --
Forbes: Is that how you lost your hair?
Rogers: Yeah, right. It was a scary time. When you looked at all the things that were going on there, but we looked at all the things they had -- television stations, CareerBuilder, Captivate in the elevators, as well as the small town newspapers that go along with USA Today, and it got all the way back to $17 from $1.70. You know, I've never had a stock go up 10-fold in sort of roughly a year's time period. But it meant you had to know that management team well. You had to know the story well and understand that it wasn't a lot more downside there if you really had done your homework.
Forbes: Talk about being contrarian. You say media, most people think oh my God, where are the exits. Yet, you're still enamored with the media. Why and how do you see it vis-a-vis the Web? Is it just these things got knocked down too low or do you think that there's real durability here?
Rogers: Well, I still think there's real value there. And I think most of the media companies have diversified into the Web, and when you talk to management teams like Gannett, they say they're kind of agnostic of whether the revenue comes in over the Web or through traditional print. But also, I think so many of our management teams, we've been talking to them a lot lately, and they are all very much excited about the new iPad. Some of the new technology, they think that's going to really cut down on distribution costs substantially. You know, if you're a newspaper, you're not going to have to have as many trucks, not have all the issues of distributing those papers around the city and you'll be able to do it through the iPad.
And as you know, the new technology's going to have great color, so you'll be able to have great graphics for the advertisers. You'll be able to check and see how people are responding to your ads. And so, I've just noticed these management teams have gotten really thrilled about the opportunity that's going to come to media because of the iPad.
Forbes: And what do you see on the advertising side in media, now obviously, we have a very selfish interest in this, but what do you see on the Web in terms of the impact of things like ad networks and ad exchanges and the like?
Rogers: Well, I think that the dollars are coming back. I think we're getting, you know, sort of, a little bit of an equilibrium too, between the Web and traditional print. I think that,you know, people have realized it's not the end all and be all to have all the money go to the Web. There's certain things that you need to have traditional print where you can do the kind of advertising that will get people to respond the way you hope the consumers will.
And I think as the dollars grow because of the economic recovery, I think traditional media's going to do better than people have anticipated.
Despite the positive view of Rogers, he has been selling the stock for the past couple of quarters. In the recent 1Q10, he sold about 700,000 shares. Click here for his holding history of this stock.
No. 3: Hewitt Associates Inc. (HEW, Financial), Weightings: 3.91% - 5,149,559 Shares
Hewitt Associates is a global provider of human resources outsourcing and consulting services. Hewitt Associates Inc. has a market cap of $3.29 billion; its shares were traded at around $35.35 with a P/E ratio of 12.5 and P/S ratio of 1.1.
Rogers seems to like service companies, as he commented in the Forbes interview:
Also, we love other professional services companies. Some of the big companies like Hewitt and Accenture. When it comes to human resources consulting, Hewitt has a great moat. When it comes to technology outsourcing and things like that, Accenture has a great moat. So those are two of our favorites.
Rogers held this stock for a long time. Back in 2Q07, he held as much as 19.4 million shares. In the recent quarter, he sold 340,000 shares. Click here for his holding history of this stock.
No. 4: The Interpublic Group of Companies Inc. (IPG, Financial), Weightings: 3.82% - 24,068,677 Shares
The Interpublic Group of Companies, Inc.'s is one of the world's organizations of advertising agencies and marketing services companies. The Interpublic Group Of Companies Inc. has a market cap of $3.9 billion; its shares were traded at around $7.98 with a P/E ratio of 33.2 and P/S ratio of 0.6.
Rogers held this stock for a long time. In the recent quarter, he sold about 550,000 shares. Click here for his holding history of this stock.
No. 5: CB Richard Ellis Group Inc. (CBG), Weightings: 3.39% - 11,201,164 Shares
CB Richard Ellis Group is a global commercial real estate services firm offering a full range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other commercial real estate assets. Cb Richard Ellis Group Inc. has a market cap of $4.79 billion; its shares were traded at around $14.89 with a P/E ratio of 36.4 and P/S ratio of 1.1.
Rogers held stock since 3Q09. He has sold a little over 700,000 shares of this stock in 1Q10. Click here for his holding history of this stock.
No. 6: Janus Capital Group Inc. (JNS, Financial), Weightings: 3.34% - 12,232,547 Shares
Janus Capital Group Inc. is a asset manager offering individual investors and institutional clients complementary asset management disciplines through the firm's global distribution network. Janus Capital Group Inc. has a market cap of $1.95 billion; its shares were traded at around $10.6 with a P/E ratio of 15.7 and P/S ratio of 2.3. The dividend yield of Janus Capital Group Inc. stocks is 0.4%.
Rogers likes money management firms as he commented in the Forbes interview:
Forbes: As you look around now, you mentioned media. Do you still like financial stocks or what are the areas you find attractive now?
Rogers: Well, some of the financial stocks we still think are very well positioned. We talked about earlier some of the real estate services companies, we like those. We also like the mutual fund companies. So we've had long time holdings with T. Rowe Price, I think we've owned actually since they went public, roughly 20 years ago. We own Franklin Resources that has the Templeton Funds, that is terrific.
And of course, we own Janus that's had its ups and downs and its problems, but we think they're getting back on track. They have a new CEO, they've had very good performance in the Janus funds. And we like the recurring revenue from the mutual fund industry. We think that they're very well positioned. As the economy recovers, more people will be putting money away into the stock market again and using mutual funds to do so.
Rogers held this stock for a long time. At peak time of 1Q05, he held 34.7 million shares and has been a net seller since then. In the recent quarter (1Q10), he bought 1.4 million shares. Click here for his holding history of this stock.
Conclusion
Rogers found value in media, real estate services, and financials in the stock market.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and John Rogers for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
Appendix
John Rogers Briefing Book
