Chuck Royce Reduces Stake in 3 Industrial Stocks

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Mar 10, 2015
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Chuck Royce (Trades, Portfolio) is well-known as a pioneer of small-cap investing and founder of Royce & Associates, which today has $32 billion in assets under management.

The principles of the firm’s investment style include a focus on risk, an absolute value orientation, and a bottom-up approach to stock selection.

On Feb. 28, Royce reduced his holding in two stocks and added to one stock, according to GuruFocus’s Real Time Picks.

In the fourth quarter, the fund was down 0.9%, while its benchmark, the Russell 2000 Index, gained 4.9%. In his quarterly commentary, Royce wrote that plummeting oil prices handed the fund its largest net losses for the calendar year.

“An overweight in energy stocks—all of them in the equipment & services industry, and six of the seven not in the Russell 2000—did not help,” he wrote.

Royce increased his stake in Amtech Systems (ASYS, Financial) by 41% on Feb. 28, for a total of 979,324 shares. The new shares came at a price of $9.37.

The stock has been down 9% over the past year, presenting an opportune time for Royce to add to his holding. The graph below shows his holding history.

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Amtech provides thermal processing systems, including related automation, parts and services for the solar/photovoltaic, semiconductor, silicon wafer and microelectro mechanical systems (MEMS) industries.

The company has been operating at a loss since FY 2012; EBIT per share is $-1.78 for the trailing 12 months. The return on invested capital was -50%, and net margin is -32% over the past year. The stock currently trades at $11.18 with a P/S ratio of 2.

Jim Simons (Trades, Portfolio) also owns a stake in Amtech with 182,796 shares.

Royce reduced his holding in Patriot Transportation Holdings (PATI, Financial) by 3.5%, leaving a total of 389,563 shares. He sold the shares for $21.95 each.

Patriot spun off from FRP Holdings on Jan. 30; its one operating subsidiary is Florida Rock & Tank Lines, which specializes in hauling freight consisting of mainly petroleum products, and liquid and dry bulk commodities.

For the fourth quarter, Patriot reported net income of $1.1 million, up from $740,000 in the year-ago quarter. Lower fuel prices helped lower the company’s cost of operations during the quarter. Cash flow from operations increased to $3.5 million, up from $1 million in Q4 2013.

The stock currently trades at $23.75 with a P/S ratio of 0.59.

Royce also sold 73% of his stake in Schnitzer Steel Industries (SCHN, Financial) for $16.06 per share, leaving a total of 701,610 shares in his portfolio.

Schnitzer is a recycler of scrap metal, used and salvaged vehicles, and a manufacturer of finished steel products. The stock has declined 37% over the past year and is overvalued according to the Peter Lynch chart.

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In Q1 2015 ended Nov. 30, the company reported net income of -$2 million, compared to -$6 million the year before. The stock currently trades at $16.09 with a P/E ratio of 45.1 and P/S ratio of 0.18.

Lastly, Royce let go of 99.4% of his holding in EXFO (EXFO, Financial) for $3.68 per share, leaving a total of 13,579 shares. The stock has been in steady decline, and Royce may be looking to sell out completely. The chart below shows his holding history.

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EXFO provides next-generation test and service assurance solutions for network operators and equipment manufacturers in the telecommunications industry. Net income in the most recent quarter was $1.5 million, up from $-700,000 in the year-ago quarter.

The stock currently trades at $3.77 with a P/E ratio of 89.8 and P/S ratio of 1.01.

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