What is Ariel Investments Buying These Days?

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John Rogers founded Ariel Investments in 1983 following a stint at William Blair & Company. Rogers received an AB in economics from Princeton University and started his own investment firm with only $100,000 from Howard University’s endowment. From 1983 to 1986, Rogers managed to grow Ariel Investments’ assets to $45 million. After reviewing Ariel’s latest 13F, we have outlined five stocks the fund was bullish on last quarter. These stocks are off the beaten path, so to speak; check out Ariel's entire portfolio here.

After a 275% stake increase last quarter, WMS Industries (NYSE: WMS) is now one of Ariel’s big bets. WMS designs and sells gaming devices for casinos and expects revenues to be up 4% in FY2013. A return to leisure spending and gaming expansion should drive demand for the company going forward. WMS trades on the low end at 13x earnings, compared to Multimedia Games (15x) and International Game (16x). Billionaire Ken Griffin, founder of Citadel Investment Group, is one of the top name investors in WMS, having upped his stake almost 250% last quarter (see all of Ken Griffin's newest picks).

Western Union (NYSE: WU), the payment processing company, saw Ariel increase its stake by 170% last quarter. Analysts expect revenues to be up only 2% this year on volume concerns, primarily due to payments tied to consumer credit. What bodes well for Western Union, though, is its solid dividend yield of 3.7% and its bargain-bin 7x P/E, compared to Green Dot (13x) and Heartland Payment (13x). The stock also trades at a lowly PEG of 0.72, indicating that investors are shy about its 5-year EPS estimates (9.3% annually). The sell-side's estimates are actually slightly (20 bips) above Western Union's bottom line growth post-2007.

Apollo Group (NASDAQ: APOL) saw Ariel increase its stake by 85% last quarter. Revenues were down 10% in FY2012, and it is expected to see further declines of 13% in FY2013. This comes on the back of continued lower student counts' new student enrollments were down 40% last year. Further declines are related to poor perception of for-profit schools, which have been questioned about sub-par graduation and loan repayment rates. Apollo's P/E looks cheap at only 6x earnings, but its low earnings growth rate justifies this valuation. Intriguingly, billionaire Ray Dalio doubled his stake last quarter (check out Ray Dalio's other big bets).

Rosetta Stone (NYSE: RST) is one of the leading service providers for technology-based language learning companies. Rosetta saw Ariel up its stake 80% last quarter. Rosetta sells a number of various audio practice tools and operates in a niche market. The company trades on the low end at a P/S below 1.0X, especially compared to Nuance Communications (3.7x) and McGraw Hill (2x). We like the prospects of Rosetta stone given a rebound in consumer spending.

International Speedway (NASDAQ: ISCA) saw Ariel up its stake by close to 70% last quarter. The underlying bullish thesis behind International Speedway comes from the consumer and leisure segment of the economy. Wall Street expects the company to grow its bottom line by 7-8% over the next half-decade, which is relatively low when coupled with the stock's expensive 23x P/E. Although International is one of the leading raceway companies, it is a bit rich at 2.8x sales, whereas Speedway is at 1.3x and Churchill Downs is at 1.7x.

It appears that Ariel is making some big investments in industries that rely on consumer spending. We believe that Ariel is betting on a rebounding economy, and its leisure-related bets tie into various industries from casinos to raceways.


This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of International Speedway and Rosetta Stone. Motley Fool newsletter services recommend International Speedway, Rosetta Stone, and Western Union. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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