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 1972 by 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, its Premier Fund (RYPRX) has grown by 833% over the past 20 years, vs. 388% for the S&P 500. Royce's approach is one of long-term value investing.
The company's reportable stock portfolio totaled $32.4 billion in value as of June 30, 2013.
So what does Royce's latest quarterly 13F filing tell us? Here are a few interesting details:
The biggest new holdings include Microsemi and Beacon Roofing Supply. Other new holdings of interest include Capstone Turbine (NASDAQ:CPST). Capstone is a smallish company, making low-emission microturbines used in power generation. Its top line has been growing by double-digits over the past few years, but its just-reported first quarter featured revenue down a bit, and net losses, though the losses have generally been shrinking in recent years. Capstone has announced a bunch of promising deals, and its order backlog has been hitting record highs. Bears worry about the threat posed by the growth in residential solar power.
Among holdings in which Royce & Associates increased its stake were Penn West Petroleum (NYSE:PWE) and InvenSense (NYSE:INVN). Penn West, which drills for oil and gas, has been struggling in an environment of low natural gas prices. Its recent second quarter featured revenue down 33%, though that was ahead of analyst estimates, and earnings improving, though remaining in the red. Its stock featured a dividend yield near 8% recently, but that has been reduced to the 5% neighborhood.
InvenSense, a leader in the motion-sensor market, supplies millions of smartphones and tablets. Its last quarter featured revenue up 43%, and the CEO noting that, "Customer design activity and confirmed design wins at customers has never been stronger." Better still, he expects the good times to keep on rolling in the coming quarter. Bulls like its innovation, and see its technology being added to millions of iDevices.
Royce & Associates reduced its stake in lots of companies, including Radian Group (NYSE:RDN). Mortgage insurer Radian has been one of the most popular stocks among hedge funds -- for good reason, apparently, as it has nearly quintupled in value over the past year. The recovering housing market is helping Radian, along with tighter lending rules, likely to lead to greater need for its coverage. Its recently reported second quarter featured losses narrowing, and a 60% increase in newly written mortgage insurance. Delinquent loans are a risk for Radian, as is strong competition. In July, its number of delinquent loans dropped a bit.
Finally, Royce's biggest closed positions included Magellan Midstream Partners and Belo. Other closed positions of interest include Walter Energy (OTC:WLTGQ). Walter is a pure play in metallurgical coal, needed by the steel industry, among other things. But demand and pricing for coal has been weak lately, and Walter's stock is down some 72% over the past year, partly as a reaction to it slashing its dividend by 92% a few months ago (to help it address debt). There seem to be few catalysts likely to propel the stock in the near future, though a big uptick in manufacturing would help.
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. Therefore, 13-F forms can be great places to find intriguing candidates for our portfolios.