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John Rogers is the Founder of Ariel Capital Management LLC, which he started in 1983 and now has over $15.5 billion in assets under management. He is a value investor with a preference for investing in small to medium sized companies, which are trading at a low valuation relative to their potential earnings or have a low valuation to their intrinsic worth.

When considering which companies to invest in he prefers to consider investing in those companies whose prospects include high barriers to entry, sustainable competitive advantages, and predictable fundamentals that allow for double digit cash earnings growth. This is exemplified by his recent investments that will be analyzed in this article, where has made a number of investments in the asset management and energy industries. In this article I will analyze five recent stock purchases by Rogers to determine whether they represent solid investment opportunities with the potential to generate solid investment returns.

Chesapeake Energy Corporation (NYSE:CHK)

Chesapeake Energy has a market cap of $15.81 billion with a price to earnings ratio of 12.43. Its 52 week trading range has been between $21.11 and $35.95, and it is currently trading at around $23. It reported third quarter 2011 earnings of $3.98 billion, an increase from second quarter earnings of $3.12 billion. Third quarter net income was $922 million, a substantial increase from second quarter earnings of $509 million. It has quarterly revenue growth of 54.10%, a return on equity 9.46% and pays a dividend with a yield of 1.40%.

One of Chesapeake Energy’s closest competitors is Noble Energy Inc (NYSE:NBL), which has a market cap of $16.44 billion and is currently trading at around $93, with a price to earnings ratio of 20.93. It has quarterly revenue growth of 21.20%, a return on equity of 11.19% and pays a dividend with a yield of 0.90%. This data indicates that Chesapeake Energy is out performing Noble Energy.

Rogers holds 1,847,800 shares in Chesapeake Energy, buying 245,130 in the third quarter 2011 to add to the 1,602,670 shares purchased in the second quarter. The average purchase price per share was $30.83. Based upon the last trading price of $23.38, he has made a return of -24.16%.

Chesapeake Energy’s cash position has improved in the last quarter. Its balance sheet showed $111 million in cash for the third quarter 2011 an increase from $109 million cash in the second quarter. Its quarterly revenue growth of 54.10%, versus an industry average of 19.00%, and a return on equity of 9.46%, versus an industry average of 11.40%, indicates that it is out performing many of its peers.

The earnings outlook for the oil and gas industry is positive due to the ongoing boom in demand for resources driven by the growth of the Chinese economy. This indicates further opportunities for strong revenue growth, which when combined with a weak dollar, that should make U.S. exports more competitive, bodes well for oil and natural gas demand and producers like Chesapeake Energy.

On the basis of this positive industry outlook combined with the company’s substantial increase in net income, increased cash holdings and strong performance indicators I agree with Rogers' investment decision and I rate the company as a buy.

Simpson Manufacturing Company (NYSE:SSD)

Simpson has a market cap of $1.48 billion with a price to earnings ratio of 36.53. Its 52 week trading range is $23.43 to $32.25, and at the time of writing it is trading at around $31. It reported third quarter 2011 earnings of $162.37 million, a decrease from second quarter earnings of $177.81 million. Third quarter net income was reported at $19.38 million, a slight decrease from the second quarter net income of $19.43 million. It has quarterly revenue growth of 10.90%, a return on equity of 5.38% and pays a dividend with a yield of 1.60%.

One of Simpson’s closest competitors is Cooper Industries Plc (CBE), which has a market cap of $8.15 billion and is trading at around $51.50, with a price to earnings ratio of 10.59. It has quarterly revenue growth of 12.00%, a return on equity of 12% and pays a dividend of 2.2%. Based on these indicators Cooper Industries is outperforming Simpson.

Rogers holds 1,699,115 shares in Simpson, buying 676,825 in the third quarter 2011, to add to the 1,022,290 shares purchased in the second quarter. The average purchase price per share was $27.69. Based upon the last trading price of $30.75, he has made a return of 11.05%.

Simpson’s cash position has improved in the last quarter. The balance sheet showed $265 million in cash for the second quarter, a slight increase from $262 million cash in the second quarter. The net tangible assets have increased slightly to $672.34 million in the third quarter from $670.29 million in the second quarter. Its quarterly revenue growth of 10.90%, versus an industry average of 10.70%, and a return on equity of 5.38%, versus an industry average of 10.40%, indicates that it is underperforming many of its peers.

The outlook for the small tools and accessories industry is quite positive despite the gloomy economic outlook. This can be attributed to sustained and sound growth opportunities in the Middle East and Asia Pacific regions. Irrespective of being a low profile sector, the industry is among the most attractive and one of the few in the world, which has not been affected by economic slowdown. In addition, the weak US dollar should make exports more competitive and this bodes well for US based manufacturers such as Simpson.

When the positive industry outlook is considered in conjunction with the increase in cash holdings and strong performance indicators I can understand Rogers’ investment decision. On this basis I rate Simpson as a buy.

Contango Oil and Gas Company (NYSEMKT:MCF)

Contango has a market cap of 942.31 million with a price to earnings ratio of 15.52. Its 52 week trading range has been $51.54 to $69.75, and it is currently trading at around $63.50. Third quarter 2011 earnings of $44.20 million were reported, an increase from second quarter earnings of $42.11 million. Third quarter net income was $14.90 million, a decrease from the second quarter net income of $17.53 million. It has quarterly revenue growth of -19.80%.

One of Contango’s closest competitors is Newfield Exploration Company (NYSE:NFX), which has a market cap of $5.83 billion and is trading at around $41, with a price to earnings ratio of 12.04. It has quarterly revenue growth of 39.90% and a return on equity of 13.82%. Based on this data Newfield and Contango are performing on par.

Rogers holds 637,416 shares in Contango, buying 355,896 in the third quarter 2011 to add to the 281,520 shares purchased in the second quarter. The average purchase price per share was $59.79. Based upon the last trading price of $60.50, he has made a return of 1.19%.

Contango’s cash position has decreased in the last quarter. The balance sheet showed $137.45 million in cash for the third quarter 2011 a decrease from $150.01 million in the second quarter. The net tangible assets have increased slightly to $428 million in the third quarter 2011, from $426.62 million in the second quarter. Its quarterly revenue growth of 19.00%, versus an industry average of 10.70%, and a return on equity of 15.79%, versus an industry average of 11.40%, indicates that it is out performing many of its competitors.

As stated earlier in this article the earnings outlook for the oil and gas industry is quite positive primarily due to the ongoing demand from China and the weak US dollar which makes US exports more competitive.

Despite the positive industry outlook I do not believe that Contango represents a good investment opportunity on the basis of its decreased revenue, unimpressive and falling net income and weak performance indicators. I also believe that the stock is currently quite expensive in comparison to the net income and return on shareholders’ equity that it is generating. I believe there are better performing companies in the industry that are better investment opportunities. Accordingly I do not agree with Rogers’ investment decision and rate Contango as a hold.

Kohlberg Kravis Roberts and Co (NYSE:KKR)

Kohlberg Kravis Roberts has a market cap of $2.54 billion, and is currently trading at around $12, with a price to earnings ratio of 18.66. Its 52 week trading range is $8.95 to $19.16. It reported third quarter 2011 earnings of $147.07 million, an increase from second quarter earnings of $100.24 million. Third quarter net income was -$243.40 million, a substantial decrease from second quarter net income of $39.62 million. It has quarterly revenue growth of 71.8%, a return on equity is 10.21% and it pays a dividend of 3.4%.

One of Kohlberg Kravis Roberts' main competitors is BlackRock Inc (NYSE:BLK), which has a market cap of $28.44 billion and is trading at around $159, with a price to earnings ratio of 12.55. It has quarterly revenue growth of 6.4%, a return on equity of 9.5% and pays a dividend with a yield of 3.6%. Based on these indicators Kohlberg Kravis Robert’s is outperforming BlackRock.

Rogers holds 3,811,495 shares in Kohlberg Kravis Roberts, buying the entire holding in the third quarter 2011. The average purchase price per share was $12.88. Based upon the last trading price of $11.94, he has made a return of -7.3%.

Kohlberg Kravis Roberts’ cash position has declined in the last quarter. The balance sheet showed $1.35 billion in cash for the third quarter 2011, a decrease from $1.50 billion in the second quarter. The net tangible assets have also decreased, to $1.27 billion in the third quarter 2011, from $1.52 billion in the second quarter. Kohlberg Kravis Roberts’ quarterly revenue growth of 71.8%, versus an industry average of 22.7%, and a return on equity of 9.5%, versus an industry average of 10.3%, indicates that it is generating better revenue growth than many of its competitors but it is not delivering the same return on equity.

The earnings outlook for the asset management industry is relatively positive, despite volatile investment returns, tight credit markets and poor consumer sentiment that has seen a drop in demand for investments. This increasingly positive outlook can be attributed to significantly improved earnings capacity and decreased regulatory risk as the financial sector reforms have been identified as having a significantly lower impact on asset managers than other industry participants. However, some caution should be exercised as any further downturn in the economy will have a direct impact on the earnings of asset managers, as it will affect investment returns and reduce demand due to a negative impact on investor sentiment.

Despite Kohlberg Kravis Roberts’ substantially decreased net income and cash holdings I agree with Rogers’ investment decision, primarily on the basis that it is now trading at the lower end of its 52 week price range and has strong performance indicators in conjunction with a relatively positive industry outlook. On this basis I rate Kohlberg Kravis Roberts as a buy.

The Blackstone Group (NYSE:BX)

Blackstone has a market cap of $6.31 billion and is currently trading at around $13. Its 52 week trading range is $1.51 to $19.63. It reported second quarter 2011 earnings of $1.31 billion, an increase from first quarter earnings of $1.15 billion. Second quarter net income was $86.23 million, a substantial increase from first quarter net income of $42.70 million. It has a return on equity of -7.21%.

One of Blackstone’s competitors is Aberdeen Asset Management PLC (OTCPK:ABDNF), which has a market cap of $2.18 billion and currently trades at around $193, with a price to earnings ratio of 1,723.21. It has quarterly revenue growth of 30.9% and a return on equity of 12.54%. Based on these indicators both companies have similar earnings growth but Avery Dennison is delivering a better return on equity.

Rogers holds 1,649,550 shares of Blackstone, buying the entire holding in third quarter 2011. The average purchase price per share was $14.28. Based upon the last trading price of $13.12, he has made a return of -8.12%.

Blackstone’s cash position improved in the last quarter. The balance sheet showed $1.43 billion in cash for the second quarter, an increase from $1.10 billion in the first quarter. Net tangible assets have increased to -$2.42 billion in the second quarter 2011, from -$2.44 billion in the first quarter. Blackstone’s quarterly revenue growth of 30.9%, versus an industry average of 22.7%, and a return on equity of 12.54%, versus an industry average of 10.3%, indicates that it is outperforming many of its competitors.

As stated earlier in the article the outlook for the asset management industry is relatively positive despite the gloomy economic outlook. When this positive outlook is considered in conjunction with Blackstone’s significant increase in net income and increased cash holdings I agree with Rogers’ investment decision. Accordingly, I rate Blackstone as a buy.

Source: Super Investor John Rogers' 5 Newest Buy Ideas