Paul Price submits:
The three Royce & Associates closed-end funds: The Royce Value Trust ((RVT)), The Royce Micro-Cap Fund (RM)) and the Royce Focus Fund (FUND) all have posted spectacular (for the time periods) NAV returns since their inception dates.
This is especially impressive since the oldest, RVT, started in November of 1986 and the second oldest, RMT, began operations on December 14, 1993. Royce took over management of the Focus Trust on Nov. 1, 1996.
Here are the outstanding NAV total returns compared with each other and their Russell 2000 benchmark:
|
Period*
|
Royce Value Trust
|
Royce Micro-Cap
|
Royce Focus Trust
|
Russell 2000
|
|
One-Year
|
44.59%
|
46.47%
|
53.95%
|
27.17%
|
|
Three-Year
|
-6.18%
|
-7.01%
|
-0.34%
|
-6.07%
|
|
Five-Year
|
1.36%
|
1.00%
|
5.44%
|
0.51%
|
|
Ten-Year
|
7.57%
|
8.64%
|
11.72%
|
3.51%
|
|
Fifteen-Year
|
10.19%
|
10.56%
|
N/A
|
7.73%
|
|
Twenty-Year
|
10.34%
|
N/A
|
N/A
|
8.34%
|
|
Since Incept.
|
10.29%
|
10.20%
|
10.82%
|
—-
|
|
Incept. Date
|
11/26/86
|
12/14/93
|
11/1/96**
|
—-
|
|
* Data as of Dec. 31, 2009
|
|
** Royce & Associates assumed management on 11/1/96
|
As of last week’s close these fine funds were still available at nice discounts to NAV. The Focus Trust sold for 10.6% below NAV while the Micro-Cap and Value Trust closed on March 13, 2010 at discounts of 15.1% and 15.2% respectively.
Royce specializes in small cap issues with a value orientation. They have far surpassed their Russell 2000 benchmark in virtually all time periods while providing solid absolute returns during one of the worst market environments in history.
While the DJIA and the S&P 500 came in about neutral for the decade ended December 31, 2009 all three of these Royce Funds posted very respectable 7.57% – 11.72% annualized results.
YTD returns for 2010 have been excellent as well.
Closed-end funds offer some huge advantages over traditional open-end mutual funds. When times are frothy they don’t get forced to accept new money that backward-looking investors tend to pour into funds right after big performance has occurred. After huge market sell-offs (like the one in late 2008 through March 9, 2009) closed-end funds were not forced to liquidate holdings to make redemptions by rear-mirror fund holders who decided to bail out when they could no longer take the pain of big paper losses. Lastly, closed-end fund bought at discounts to NAV (as these three are priced presently) give you a leverage dividend yield because you collect 100% of the payouts while needing to lay out only 85% – 90% of the true value of the shares you are buying.
These funds are perfect choices for anyone who desires time-tested, professional management for the small-cap allocation of their overall portfolio mix. How many other mutual funds performed this well during the turbulent period we’ve just concluded?
Disclosure: Author owns all shares in all three of the Royce Funds mentioned here.
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John Reese submits:
While many investors — including John Paulson and George Soros — have been keying on gold lately, Kenneth Fisher recently offered some words of caution to investors looking to ride the gold wave. In his latest Forbes column, Fisher says that while gold has averaged annual returns of about 7.1% since the downfall of the Bretton Woods exchange-rate system 37 years ago, the gains have come in bursts – gold has gained ground in just 66 of the 433 months in that period. So, "if you aren’t an exquisite timer, or very lucky, gold isn’t a great place to aim your money," he warns.
Instead, Fisher says he is currently targeting stocks of firms with good growth potential. I think he’s wise to do so, and I recently came across two such stocks — thanks in part to the ‘Guru Strategy’ I base on Fisher’s early writings. (Each of my Guru Strategies is based on the approach of a different investing great. Developed after extensive historical testing, the alerts are issued when my models detect a series of high-conviction buy signals that, when previously reached by individual stocks, have tended to be followed by strong performance.)
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eChristian Investing submits:
Darden Restaurants (DRI) is scheduled to report their fiscal third quarter 2010 results after the market closes on Tuesday, March 23rd. Darden is expected to report better than expected quarterly results that exceed Wall Street’s consensus expectations.
Analyst Expectations
We are forecasting revenues of $1.86 billion and EPS of $.93. This would represent a 3% increase in revenues from last year’s $1.80 billion in the same period. The current analyst consensus estimates calls for revenues of $1.85 billion and EPS of $.92. On February 16, the company provided updated quarterly guidance of $.91 – $.93 EPS and y/y growth in blended same-store-sales of (0.5%) – 0.5%.
Earnings Analysis
Darden Restaurants appears to be having a very strong quarter and their updated earnings guidance last month was considerably above Wall Street’s consensus estimates. Our checks show that weekend visitor traffic has been very strong in 2010. Consumers may be reducing their spending, but are still willing to splurge on a visit to Red Lobster or Olive Garden.
Darden is guiding for earnings growth of 5 – 8% in fiscal year 2010. These guidance numbers are likely too conservative given the positive consumer traffic trends that we are seeing. It’s also important to recognize that Darden’s traffic improvements are not being driven by pricing promotions which will result in stronger bottom-line results.
Stock Performance
In 2009, Darden Restaurant shares gained 24% for the full year. The stock has been trending steadily higher since last November and is up 24% since the beginning of 2010.
Valuation
Darden Restaurants is now trading at 14x consensus 2011 EPS estimates. This is a discount to the relative valuations of their peer group. Darden stock has already had a very nice run over the last few weeks, so we wouldn’t expect a huge lift following their earnings release. However, the stock is still attractively valued and has additional upside opportunity as the economy returns to strength.
Recommendation: Buy with an $47 price target
Disclosure: No positions
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Nathan Kawaguchi submits:
Value investors typically look for bargains in either cheap assets or cheap cash flows. Stocks are rarely bargains when a company is prosperous and everyone loves it. Bargains are most often found under a cloud. And there are certainly clouds hanging over H&R Block (HRB) these days. Because investment returns are simply a function of what you pay versus what you receive, the drop in price at the end of February prompted another look.
Like many investors, I followed H&R Block for years as their network of company-owned and franchised locations grew across the U.S. Block’s leading market position, strong brand name and low capital requirements made it an attractive free cash flow generator with high returns on capital. Unfortunately, Block became heavily involved in subprime mortgage lending through its Option One subsidiary at exactly the wrong time. The mortgage losses began eating up all of the free cash flow from the core tax preparation business. Within the past couple years, Block has discontinued the mortgage origination business and sold its financial advisory business in order to return focus to its core tax prep business.
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Dividends4Life submits:
As a young investor I followed an aggressive growth strategy. Having narrowly missed the tech bubble bursting, I purchased my first dividend stock on December 11, 2003. I had heard dividend investments were supposed to be safer, but knew very little else about the strategy. I was fortunate enough to accidentally buy enough good dividend stocks to learn the “secret” of dividend investing. It is not necessarily starting with a high-yield investment, but ending up with a high-yield investment. This usually occurs by buying stocks with a moderate yield and a long history of growing dividends and letting time do its job.
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Dobromir Stoyanov submits:
Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. The company is a component of the S&P 500 and the dividend aristocrat indexes. Abbott Laboratories has increased dividends for 38 years in a row. Most recently Abbott raised its quarterly dividend payment by 10% to $0.44/share. Dividend author Dave Van Knapp has included the company in his most recent book "The Top 40 Dividend Stocks for 2010".
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Zacks.com submits:
By Dirk van Dijk
We got more evidence on Thurday that inflation is not a serious concern. The Consumer Price Index (CPI) was unchanged in February after five straight months when it had increased by only 0.2% per month. Overall consumer prices are just 2.1% higher than a year ago.
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Joel Smolen submits:
Joel Smolen is the Managing General Partner of the Axion Opportunity Fund. Joel previously founded and was CEO of Applied Molecular Technology Corporation, which was sold to European metals company Boliden AB. Prior to that, he was founder and CEO of MicroMetallics Corporation, which was sold to Xstrata PLC, an international mining and metals company. Joel was also Senior Vice President of LMC Corporation, now part of Sims Metal Management (SMS), a worldwide ferrous and non ferrous metals company.
Axion Opportunity Fund has been ranked number one in the Equity Long / Short Opportunistic classification by BarclayHedge, based on compound annual return over the one, three and five year intervals and life of the fund.
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Nicholas Marshi submits:
We’ve been worried about the sustainability of TICC Capital’s (TICC) 15 cents a quarter dividend for several months. The company is a Business Development Company (BDC) which mostly focuses on middle market technology lending, and whose most notable feature is having no debt and no bank line, a result of drastic de-leveraging at the very beginning of the Great Recession. Of course, during the intervening time the Company has announced a new distribution of 15 cents, earned 1 cent more in Net Investment Income in the fourth quarter of 2009 than in the prior period, and seen its stock price jump up to nearly $7, just 16% off NAV. So we thought the issuance of the 10-K would be a good time to revisit our analysis of the Company. Please read on, but in brief: we came away with a warmer feeling about TICC’s 2010 prospects, but continue to question the ability of TICC to maintain earnings per share above $0.60 a year should more credit problems develop.
Let’s start by pointing out that the Company does not have a stellar credit underwriting record. In each of the last 3 years the Company has recognized major Realized Losses (notwithstanding a few Realized Gains) which have totaled $32mn. That’s 10% of initial capital. Plus, another $61mn in assets still on the books have been written down, which means that TICC’s assets at FMV are being carried at 77% of cost, and that’s despite the Company recirculating a substantial portion of its assets in the past year. We used to be a major proponent of the Company back in the go-go days but we lost our religion when the Company announced several bad debts back in 2007-2008. Of course all companies have problem credits. The issue with TICC is that, from an investor’s point of view, many of its loans went from performing to valueless very quickly. On paper the Company was principally a senior secured lender but when troubles occurred at portfolio companies, the underlying assets often had no or little value.
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China OTC Player submits:
With the recent retreat of some of our Chinese small caps, certain stocks are looking very attractive once again. Just today, I loaded up on some of my favorite plays.
This is the perfect time. We are in the midst of a reporting season that is shaping up to be one that is not only very positive but has in fact not uncovered any nasty surprises. As a contrarian, I love taking advantage of the uncertainty surrounding the Yuan and China’s credit market. Further, even though some of us have been in this space for a long while, judging from the actions of certain investors, Chinese small caps are garnering attention like never before.
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VFC submits:
On March 10th, Celsius Holdings issued a press release announcing that the company had "converted to common stock approximately $5.1 million of its convertible debt and all of the remaining preferred shares."
The bulk of the conversion was done by CDS Ventures, a Carl DeSantis company, which converted $4.5 million of the $6.5 million outstanding balance of its convertible debt to common stock (conversion price of $10.20) and also converted all of its series A preferred shares. Another un-named holder of convertible debt also converted over $600,000 for just below $3.50 a share.
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George Spritzer submits:
Cohen and Steers Infrastructure Fund (UTF) is selling at an attractive discount to NAV and is an attractive way to invest in global infrastructure companies- utilities, pipelines, toll roads, railroads, airports, ports etc. The fund is well diversified and owns 150 securities. A managed quarterly distribution of $0.24 a share has been paid over the last year equivalent to about a 6% distribution yield. The distributions have included $0.032 return of capital.
On January 1, 2010, UTF changed its name from “Cohen and Steers Select Utility Fund” to “Cohen and Steers Infrastructure Fund”, at the same time changing its mandate to invest at least 80% of its managed assets in securities issued by infrastructure companies and its benchmark to the UBS Global 50/50 Infrastructure and Utilities Index.
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Investing, Long Term Investment, stock market | admin March 19, 2010 | 
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