John Rogers (Trades, Portfolio), leader of Ariel Investments, disclosed his firm’s first-quarter portfolio in May.
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.
In its first-quarter letter, the Ariel Fund said, “Our sole consideration of recent events and macroeconomic developments is to consider their effect on the long-term intrinsic worth of our names over the next five to 10 years.”
It continued:
“Given our ‘slow and steady’ approach, we remain confident in our portfolio positioning, especially with our domestic strategies trading at a discount relative to their relevant indices. Looking ahead, we firmly believe the patient investor that stays the course and consistently owns differentiated businesses, with solid competitive positioning and robust balance sheets will likely achieve strong returns over the long run.”
Keeping this in mind, 13F filings show the firm entered one new position during the three months ended March 31, sold out of three stocks and added to or trimmed a slew of other existing investments. The most notable trades included increased bets on Leslie’s Inc. (LESL, Financial), Credicorp Ltd. (BAP, Financial) and Itau Unibanco Holding SA (ITUB, Financial) and reductions in its holdings of The Interpublic Group of Companies Inc. (IPG, Financial) and Philip Morris International Inc. (PM, Financial).
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Leslie’s
The firm boosted its Leslie’s (LESL, Financial) stake by 556.76%, investing in 10.04 million shares. The transaction impacted the equity portfolio by 1.06%. The stock traded for an average price of $12.99 per share during the quarter.
Ariel now holds 11.84 million shares in total, which account for 1.25% of the equity portfolio. GuruFocus estimates it has lost 16.43% on the investment so far.
The Phoenix-based retailer of swimming pool supplies and related products has a $1.96 billion market cap; its shares were trading around $10.62 on Thursday with a price-earnings ratio of 16.43 and a price-sales ratio of 1.32.
The GF Value Line suggests the stock, while undervalued, is a possible value trap currently based on its historical ratios, past financial performance and analysts’ future earnings projections. As such, potential investors should do thorough research before making a decision.
In its quarterly letter, Rogers’ firm noted the stock has sold off recently due to “near-term operational issues at a distribution facility, as well as concerns around the sustainability of the company’s growth profile in a normalized, post-pandemic environment.”
At 41 out of 100, the GF Score indicates the company has poor performance potential. While it received middling marks for profitability, financial strength and value, there is not enough data to generate ratings for growth or momentum. As such, its full potential may not be accurately reflected.
Of the gurus invested in Leslie’s, Rogers’ firm has the largest stake with 6.44% of its outstanding shares. PRIMECAP Management (Trades, Portfolio), Jefferies Group (Trades, Portfolio), Mario Cibelli (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) also own the stock.
Credicorp
The firm’s Credicorp (BAP, Financial) stake was increased by 38.43%, picking up 404,508 shares. The transaction had an impact of 0.51% on the equity portfolio. Shares traded for an average price of $134.19 each during the quarter.
It now holds 1.45 million shares in total, which represent 1.85% of the equity portfolio. GuruFocus data shows the firm has gained 9.14% on the investment to date.
The financial services company headquartered in Peru has a market cap of $11.14 billion; its shares were trading around$140.04 on Thursday with a price-earnings ratio of 8.39, a price-book ratio of 1.35 and a price-sales ratio of 2.04.
According to the GF Value Line, the stock is modestly undervalued currently.
The GF Score of 82 implies the company has good outperformance potential, driven by high ratings for growth, value and momentum as well as more moderate profitability and financial strength ranks.
With a 6.97% stake, Dodge & Cox is Credicorp’s largest guru shareholder. Other top guru investors include Baillie Gifford (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Ron Baron (Trades, Portfolio), Howard Marks (Trades, Portfolio) and Sarah Ketterer (Trades, Portfolio).
Itau Unibanco
Rogers’ firm expanded its Itau Unibanco (ITUB, Financial) stake by 1,192.74%, buying 9.42 million shares. The transaction impacted the equity portfolio by 0.44%. During the quarter, the stock traded for an average per-share price of $4.80.
The firm now holds a total of 10.21 million shares, which occupy 0.48% of the equity portfolio. GuruFocus found it has gained 9.82% on the investment.
The Brazilian financial services company has a $54.34 billion market cap; its shares were trading around $5.55 on Thursday with a price-earnings ratio of 9.30, a price-book ratio of 1.33 and a price-sales ratio of 1.59.
Based on the GF Value Line, the stock appears to be modestly undervalued currently.
The GF Score of 77 means the company is likely to have average performance going forward on the back of a high momentum rank and more moderate ratings for the other four criteria.
Dodge & Cox is the company’s largest guru shareholder with a 0.19% stake. Itau Unibanco is also being held by Ken Fisher (Trades, Portfolio), Marks, Baillie Gifford (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and several other gurus.
Interpublic Group
With an impact of -0.79% on the equity portfolio, the firm curbed its position in Interpublic Group (IPG, Financial) by 28.37%, shedding 2.32 million shares. The stock traded for an average price of $35.94 per share during the quarter.
Rogers’ firm now holds 5.85 million shares, which make up 2.10% of the equity portfolio. GuruFocus research indicates it has gained an estimated 146.93% on the long-held investment.
The New York-based advertising and marketing company, which is also known as IPG, has a market cap of $15.36 billion; its shares were trading around $39.79 on Thursday with a price-earnings ratio of 17.23, a price-book ratio of 4.34 and a price-sales ratio of 1.43.
The GF Value Line suggests the stock is modestly overvalued currently.
Supported by high ratings for profitability, growth and momentum and moderate financial strength and value ranks, the GF Score is 83. This indicates the company has good outperformance potential.
Holding a 1.52% stake, Rogers’ firm is the largest guru shareholder of IPG. The stock is also being held by Mario Gabelli (Trades, Portfolio), Bernard Horn (Trades, Portfolio), Jefferies Group (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), George Soros (Trades, Portfolio), Charles Brandes (Trades, Portfolio) and many others.
Philip Morris International
Impacting the equity portfolio by -0.65%, the Philip Morris (PM, Financial) holding was reduced by 17.86%, or 636,648 shares. During the quarter, shares traded for an average price of $99.66 each.
Ariel now holds 2.93 million shares. The stock is its second-largest holding with a weight of 2.74%. GuruFocus says the firm has gained around 9.28% on the investment over its lifetime.
The tobacco company, which is headquartered in Stamford, Connecticut, has a $142.75 billion market cap; its shares were trading around $91.97 on Thursday with a price-earnings ratio of 16.45 and a price-sales ratio of 4.46.
According to the GF Value Line, the stock is modestly undervalued currently.
The GF Score of 75 implies the company is likely to have average performance going forward. Although it received a high rating for profitability, the ranks for the other four criteria were more moderate.
Of the gurus invested in Philip Morris, First Eagle Investment (Trades, Portfolio) has the largest stake with 0.59% of its outstanding shares. Tom Russo (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, the T Rowe Price Equity Income Fund (Trades, Portfolio) and Simons’ firm also have large positions.
Additional trades and portfolio performance
During the quarter, the Ariel Fund also entered a position in Ambev SA (ABEV, Financial), added to investments in Generac Holdings Inc. (GNRC, Financial) and Dun & Bradstreet Holdings Inc. (DNB, Financial) and cut back its Manchester United PLC (MANU, Financial) and Microsoft Corp. (MSFT, Financial) holdings.
The fund's $10.41 billion equity portfolio, which is composed of 115 stocks, is largely invested in the consumer cyclical, financial services, industrials and communication services sectors.
The Ariel Fund posted a return of -18.82% for fiscal 2022, slightly underperforming both the Russell 2500 Index’s -18.37% return and the S&P 500's -18.11% return.
