Financials Dominate Ariel Investments’ Top Holdings

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Now in its thirtieth year of existence, Ariel Investments is a dinosaur relative to some of the fly-by-night funds that have come and gone in the twenty-first century, many of which succumbed to the flight of assets and loss of value during the 2008 market turmoil. Started by Princeton-alum John W. Rogers in 1983, the fund has grown to manage over $4.6bn in assets as of its last 13F filing in September of 2012. Diving into the SEC document let us take a glimpse at his five largest holdings and gave us some insight as to Rogers’ main areas of investment focus.

First American Financial (NYSE: FAF) tops the list of fund holdings, with approximately 4% of assets employed in the stock. FAF has been one of Roger’s top holdings since early last year, and it has been quite the winner for him. In the last year alone, the stock price has increased 76%, helped along by multiple earnings beats and upgrades by the likes of Barclays. The financial services provider has an alarmingly low PEG of 0.24, but at Insider Monkey we are worried that the rise from trailing P/E to forward P/E could be evidenced by a smaller projected stock price in the future. Insider Monkey concurs with analysts on the Street that this is a hold and an investor jumping in now may have missed the boat.

Next up is the financial advisory and asset management company Lazard (NYSE: LAZ). With clearly defined global streams of business, Lazard has avoided some of the convoluted chaos that claimed some of the world’s largest banks and asset managers. However, the volatility versus the market still exists with the stock’s high beta of 2, and a very high price-to-book ratio of 5.46 throws up some red flags. Despite a respectable gain in 2012, analysts are pulling in the reigns, and we at Insider Monkey expect the price one year out to be a dollar less than where it’s trading now ($33 versus a close of $34.01 on January 18) (check out what other insiders think of LAZ here.)

Rogerscurrently has over $180mm employed in the international media and marketing company Gannett (NYSE: GCI), most notably known for publishing the newspaper “USA Today”. Large newspaper players (including competitors News Corp and the New York Times) have been struck with hard times during the rise of the web, but financial metrics look positively upon GCI. While margins may not be as glamorous as before digital circulation, GCI trades at a respectable forward price-to-earnings of 9 and has both positive quarterly earnings and revenue growth over the same period a year prior. In this specific case, Rogers may be chasing the impressive dividend yield of 4%, the highest of his top five holdings.

Ariels’ fourth largest holding is Interpublic Group of Companies (NYSE: IPG), an international advertising, communications, and marketing services concern. IPG continues to grow their advertising revenue streams with acquisitions, but their purchases have gone on to impact the growth of revenue and earnings, pushing them into negative territories versus the same quarter a year ago. In spite of this, sell-side analysts remain overly bullish about IPG, and out of twenty-one analyst ratings, seventeen remain in the buy territory. David Harding of Winton Capital Management recently initiated a new position in IPG (see who else is jumping in this stock here).

Ariel’s last top five holding is in another financial, Janus Capital Group (NYSE: JNS). This investment manager has a large exposure to equity strategies, which can cause investors to flee during periods of poor market conditions and poor performance. Lackluster earnings in 2012 brought on negative responses from ratings houses, including multiple “Sells” from the bulge brackets like Goldman Sachs and Morgan Stanley. Growth is dismal and future price targets are gloomy; here at Insider Monkey we would stay away from this asset manager in lieu of others with better fund performance and investor loyalty. 

This article is written by Eric Winter and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool recommends First American Financial. The Motley Fool owns shares of LAZARD Ltd.. 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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