Every quarter, many money managers have to disclose what they've bought and sold via "13F" filings. Their latest moves can shine a bright light on smart stock picks.
Today let's look at respected investing company Royce & Associates, founded in 1972by Chuck Royce, who is known as a small-cap guru. The company's flagship fund is its Pennsylvania Mutual (PENNX), which has averaged close to 14% annually since its inception more than 40 years ago. That's darn impressive. Per the folks at gurufocus.com, Royce's Premier Fund (RYPRX) has grown by 833% over the past 20 years, compared to 388% for the S&P 500. Royce's approach is one of long-term value investing.
The company's reportable stock portfolio totaled $33.6 billion in value as of Sept. 30, 2013.
So what does Royce's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings are Genesco and Mallinckrodt Pharmaceuticals. Other new holdings of interest include Smith & Wesson Holding (NASDAQ:SWHC). You might think a gun maker such as Smith & Wesson would be a poor investment, given increased national concern over gun violence. You'd be wrong, though, as those worries have resulted in limited reforms. Indeed, fears of increased regulations have actually led to a surge in sales as people stock up on firearms. Smith & Wesson's most recent earnings report featured revenue up 2% (or 9.2% if you exclude a now-expired distribution agreement). Earnings per share from continuing operations surged 17%, while handgun sales popped 27%. With a P/E ratio of less than 10 and a forward P/E near eight,, the stock price is appealing -- but bears worry about gun sales gradually slowing.
Among holdings in which Royce & Associates increased its stake was Capstone Turbine (NASDAQ:CPST). Capstone is a smallish company that produces low-emission microturbines used in power generation. Its stock has surged more than 30% in the past year, but over the past decade it has lost ground. Capstone Turbine has a lot going for it, such as rapid revenue growth and a fattening profit margin. But it has also posted a string of net losses and negative free cash flow over the past few years. Its last quarterly report featured revenue up 17% from year-ago levels and net losses shrinking by 42%. Better still, its backlog of orders rose 6% to $150 million. Bears worry about the threat posed by the growth in residential solar power.
Royce & Associates reduced its stake in a number of companies, including Pretium Resources (NYSE:PVG) and Celldex Therapeutics (NASDAQ:CLDX). Pretium Resources is a Canada-based metals and minerals company -- and a volatile one. It crashed 27% in October on news of disappointing results from its Valley of the Kings Bulk Sample Program, and then skyrocketed 78% in November on news that significant gold was found in a sample from the same mine. Commercial production is scheduled to begin in 2016, so investors will need some patience, along with faith. Some see the company as a likely acquisition target, as a more deep-pocked entity will be better able to extract the metals it finds.
Celldex shares are up more than 260% over the past year. The biotech is targeting late-stage cancers and has seen great promise in some of its formulations, with more in its pipeline. Bulls are optimistic about its attempts to treat orphan diseases, as well. Celldex's bears don't like its recent stock dilution, but bulls like its promising drugs in late-stage development for brain cancer and late-stage breast cancer. Its last quarterly earnings report featured a drop in revenue due to shrinking royalties and significant cash burn. But with a biotech company such as Celldex, potential FDA approvals hold the keys to its ultimate success.
Finally, Royce's biggest closed positions included Maidenform Brands and AFP Provida. Other closed positions of interest include Annaly Capital Management (NYSE:NLY). Annaly, a mortgage REIT, has seen its stock drop more than 20% over the past year, helping push its dividend yield up close to 14%. The Federal Reserve's tapering and the specter of rising interest rates, along with a sell rating from Goldman Sachs, have pressured the stock, but it's worth noting that even a 60% dividend cut would offer a yield topping 5%, and that much of the bad news is already baked into its price. Annaly Capital Management is moving more into commercial real estate, and in its last earnings report, management tempered expectations due to a shaky environment. Some have balked over management structure and compensation.
We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13F forms can be great places to find intriguing candidates for our portfolios.
Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.