Royce & Associates was founded by Chuck Royce in 1972. The fund tends to invest in mid-cap and small-cap companies which it believes are underpriced, and since stocks in this value range are often ignored by analysts and other large investors Royce’s picks can serve as something of a screen for smaller-cap stocks that an investment team approves of. Check out Royce’s most recent stock picks. Royce recently filed several 13Gs with the SEC, disclosing recent increases or decreases in some positions that represent (or represent) a large portion of the company’s shares outstanding. Here are three stocks that Royce & Associates was buying:
The fund added to its position in FARO Technologies, Inc. (NASDAQ:FARO), a $590 million market cap company which manufactures measurement and imaging systems for use by automobile, aerospace, and equipment manufacturers. On average over 100,000 shares have been traded per day in the last three months, and the current stock price if about $35 per share. As might be expected from its customer base, FARO is tied closely to the overall economy and the stock has a beta of 2.3. Joel Greenblatt had a small position in FARO at the end of the third quarter (see Greenblatt’s favorite stocks). The stock trades at 24 times trailing earnings, though in the third quarter the company’s revenue decline 6% and its earnings fell 43% versus a year earlier. Meanwhile, one of the largest scientific and technical instrument companies, Agilent Technologies Inc. (NYSE:A), has a trailing P/E of only 12 and has actually been seeing better numbers on the bottom line. We think it, and potentially other companies in the industry, are better values than the struggling FARO.
Royce had increased its holdings of Hi-Tech Pharmacal Co. (NASDAQ:HITK) by 62% between July and September to about 860,000 shares; the fund now owns 1.3 million shares of the company, giving it about 10% of the total shares outstanding. Billionaire Israel Englander’s Millennium Management increased its own stake in the company to about 130,000 shares at the end of September (find more stocks that Englander liked). The $460 million market cap Hi Tech (again, there seems to be over $3 million in average daily dollar volume) just announced better-than-expected quarterly results, as earnings declined by less than had been expected. The trailing and forward P/E multiples are now 12, which might be considered a good price if the company can stop the decline in its business. Hi Tech can be compared to Mylan Inc. (NASDAQ:MYL), which is considerably larger and has been reporting strong growth numbers. While it is priced at a premium relative to Hi Tech- Mylan’s trailing P/E is 19- its superior size and performance might justify that valuation.
DTS Inc. (NASDAQ:DTS) was another Royce buy, with the fund’s position increasing to 1.7 million shares from 1.2 million at the beginning of October. The audio processing technology has a smaller market capitalization than the other two companies we’ve discussed, at about $290 million, but again seems to have over $1 million in average daily solar volume. Renaissance Technologies, whose founder Jim Simons is now a billionaire, owned about 300,000 shares according to its most recent 13F filing. See Renaissance Technologies’ top stock picks. DTS reported a large loss last quarter but revenue was up and analyst estimates have the stock trading at 14 times consensus earnings for 2013. However, the most recent data shows that about 18% of the outstanding shares are held short and so we’d conclude that a number of market players are bearish on the company. Dolby Laboratories, Inc. (NYSE:DLB) is also widely shorted, and its P/Es are in the 14-15 range, but that company experienced a decline in revenue as well as earnings last quarter compared to the same period in the previous year. It’s possible that DTS is a better buy, but we’d need to research the company further.
