John Rogers’ Firm Curbs Holdings Of 3 Companies

John Rogers (Trades, Portfolio), leader of Ariel Investments, disclosed earlier this week his firm curbed its holdings of three stocks on Feb. 28.

The guru’s Chicago-based firm invests in undervalued small and mid-cap companies that have sustainable competitive advantages, high barriers to entry and predictable fundamentals that allow for double-digit earnings growth. Like the tortoise featured in the firm’s logo, Rogers emphasizes that patience, independent thinking and a long-term outlook are necessary for generating good returns.

According to GuruFocus Real-Time Picks, a Premium feature, the firm trimmed its position in RealNetworks Inc. (NASDAQ:RNWK) by 81.74%, its holding of Ballantyne Strong Inc. (BTN) by 66.44% and its MIND Technology Inc. (NASDAQ:MIND) stake by 32.77%.

RealNetworks

With an impact of -0.14% on the equity portfolio, Ariel divested of 2.7 million shares of RealNetworks (NASDAQ:RNWK). The stock traded for an average price of $4.37 per share on the day of the transaction.

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The firm now holds 616,688 shares total, accounting for 0.03% of the equity portfolio. GuruFocus estimates it has lost 47.68% on the investment since establishing it in the third quarter of 2013.

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The Seattle-based company, which provides internet streaming media delivery software and related services, has a $175.71 million market cap; its shares were trading around $4.68 on Thursday with a price-book ratio of 3.8 and a price-sales ratio of 1.49, which GuruFocus noted were all approaching multiyear highs.

The GF Value Line shows the stock is significantly overvalued currently based on historical ratios, past performance and projected earnings.

The GF Value line suggests the stock is significantly overvalued currently.

GuruFocus rated RealNetworks’ financial strength 6 out of 10. Although the company’s debt ratios are underperforming versus its industry as well as its own history, the Altman Z-Score of 4.44 suggests it is in good standing even though revenue per share had been in decline over the past three years.

The company’s profitability fared much worse, scoring a 2 out of 10 rating. While the operating margin is expanding, returns are negative and underperforming over half of its competitors. RealNetworks has a moderate Piotroski F-Score of 4, however, that indicates business conditions are stable. It also has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in RealNetworks, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest stake with 4.53% of outstanding shares. Chuck Royce (Trades, Portfolio) also owns the stock.

Ballantyne Strong

The firm sold 4,724 shares of Ballantyne Strong (BTN), impacting the equity portfolio by -0.05%. Shares traded for an average price of $2.56 each on the day of the transaction.

It now holds 866,834 shares total, which represent 0.03% of the equity portfolio. Ariel has lost an estimated 36.06% on the long-held investment according to GuruFocus.

John Rogers’ holding history of Ballantyne Strong.

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The holding company headquartered in Charlotte, North Carolina is involved in a diverse number of business activities, including cinema products, digital signage and advertising, among others. The company has a market cap of $50.42 million; its shares were trading around $2.75 on Thursday with a price-earnings ratio of 55.4, a price-book ratio of 1.48 and a price-sales ratio of 0.8.

According to the GF Value Line, the stock is modestly overvalued currently. The valuation rank of 7 out of 10, however, leans more toward undervaluation even though the share price and price ratios are approaching multiyear highs.

The GF Value Line suggests the stock is modestly overvalued.

Ballantyne Strong’s financial strength was rated 4 out of 10 by GuruFocus. In addition to sporting debt ratios that underperform the overall industry in addition to its own history, the Altman Z-Score of 1.89 warns it is under some pressure since revenue per share had been in decline for the past several years.

The company’s profitability scored a 3 out of 10 rating. Although the operating margin is negative, Ballantyne Strong is supported by returns that outperform over half of its industry peers as well as a moderate Piotroski F-Score of 6. It also has a one-star predictability rank.

With 4.76% of outstanding shares, Rogers’ firm is the company’s largest guru shareholder. Simons’ firm also has a position in the stock.

MIND Technology

Impacting the equity portfolio by -0.02%, Ariel disposed of 862,362 shares of MIND Technology (NASDAQ:MIND). On the day of the transaction, the stock traded for an average per-share price of $2.42.

The firm now holds 1.7 million shares total, giving it 0.05% space in the equity portfolio. GuruFocus data shows it has lost an estimated 73.8% on the investment since the second quarter of 2009.

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The Woodlands, Texas-based company, which provides technology solutions for the exploration, survey and defense applications in the oceanographic, hydrographic, defense, seismic and security industries, has a $31.03 million market cap; its shares were trading around $2.45 on Thursday with a price-book ratio of 3.51 and a price-sales ratio of 0.73.

Based on the GF Value Line, the stock appears to be modestly undervalued currently. The valuation rank of 9 out of 10 aligns with this assessment even though the share price and price ratios are closing in on multiyear highs.

The GF Value Line shows the stock is modestly undervalued currently.

GuruFocus rated MIND’s financial strength 5 out of 10. While debt ratios seem to be performing well, the Altman Z-Score of -1.08 warns that the company could be at risk of going bankrupt if it does not improve its liquidity.

The company’s profitability did not fare as well with a score of 3 out of 10. In addition to a declining operating margin, MIND is being weighed down by negative returns that underperform a majority of competitors. It also has a moderate Piotroski F-Score of 4 and a one-star predictability rank that is on watch as a result of revenue per share declining over the past several years.

Rogers’ firm is the company’s largest guru shareholder with a 13.73% stake. Simons’ firm also has a position in MIND Technology.

Portfolio composition and performance

The Ariel Fund’s $8.88 billion equity portfolio, which was composed of 140 stocks as of the end of the fourth quarter, is largely invested in the communication services (19.39%), financial services (19.14%) and industrials (14.39%) sectors.

John Rogers’ portfolio composition by sector.

The fund’s five largest holdings as of Dec. 31 were Baidu Inc. (NASDAQ:BIDU), Philip Morris International Inc. (NYSE:PM), Microsoft Corp. (NASDAQ:MSFT), Mattel Inc. (NASDAQ:MAT) and Envista Holdings Corp. (NYSE:NVST).

In its fourth-quarter commentary, the firm revealed the Ariel Fund returned 31.56% during the quarter. The fund posted a return of 10.02% for fiscal 2020, underperforming the S&P 500’s 18.4% return.

Disclosure: No positions.

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