Royce & Associates' Stock Picks With The Most Upside Potential

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Includes: ADI, BBBY, COH, DLTR, EPD, FITB, GWW, NLY, NUE, PAA, RL, ROST, WDC
by: Insider Monkey

Royce & Associates was founded by Chuck Royce in 1972. The company employs a value-based approach to look for companies that are underpriced relative to the enterprise value. Royce focuses on small and mid cap companies where stocks are more likely to be mispriced. Most stocks in its portfolio have market capitalizations less than $5 billion.

In this article we are going to focus on the largest cap stocks in Royce’s portfolio that are covered by several analysts. All companies have at least $10 billion market cap and the average analyst recommendation scores of lower than 2.5, which means buy or better (1=strong buy, 2=buy, 3=hold, 4=sell, 5=strong sell). Moreover, Royce invested at least $10 million in these positions. The market data is sourced from Finviz.

Company Name

Ticker

Value

Activity

Analyst Recom

ENTERPRISE PRODUCTS PARTNERS

EPD

17218

0%

1.6

SANDISK CORP

SNDK

26984

-8%

1.8

PLAINS ALL AMERN PIPELINE

PAA

16588

0%

1.9

BED BATH & BEYOND

BBBY

89002

4%

2

COACH INC

COH

26356

3%

2.1

ANALOG DEVICES INC

ADI

19654

12%

2.1

DOLLAR TREE INC

DLTR

20896

-30%

2.2

FIFTH THIRD BANCORP

FITB

17107

8%

2.2

NUCOR CORP

NUE

12825

8%

2.2

POLO RALPH LAUREN

RL

77820

-28%

2.3

ROSS STORES INC

ROST

15707

0%

2.3

ANNALY CAPITAL

NLY

11706

0%

2.3

GRAINGER W W INC

GWW

36401

-37%

2.5

Click to enlarge

The largest position in Royce’s latest 13F portfolio with high upside potential is Bed Bath & Beyond Inc (NASDAQ:BBBY). At the end of the third quarter, Royce & Associates reported to have $89 million worth of BBBY stock in its portfolio. Since then, BBBY returned 0.58%, lower than the market return of 12.50%. The average analyst recommendation score for the stock is 2, indicating some form of perceived value. BBBY has a market cap of $14.1B and a P/E ratio of 15.49. Tiger cub Stephen Mandel is bullish about BBBY as well. As of September 30, his Lone Pine Capital invested over $300 million in this stock.

The stock with the highest upside potential in Royce’s portfolio is Enterprise Products Partners LP (NYSE:EPD). It has an average analyst recommendation score of 1.6. At the end of September, Royce invested $17.2 million in EPD. The stock returned 15.07% so far in the fourth quarter, beating the 12.50% for SPY. EPD has a market cap of $40.4B and a P/E ratio of 24.24. At the end of the third quarter, billionaire Jim Simons’ Renaissance Technologies also invested $17.7 million in this stock.

Other stocks with high upside potential that Royce is in favor of include SanDisk Corp (SDNK), Plains All American Pipeline LP (NYSE:PAA), Coach Inc (NYSE:COH), Analog Devices Inc (NYSE:ADI), Dollar Tree Inc (NASDAQ:DLTR), Fifth Third Bancorp (NASDAQ:FITB), and Nucor Corp (NYSE:NUE). We like Royce. The overall performance of his fund in the fourth quarter is quite good. Our research has shown that by imitating the best stock picks of successful fund managers like Royce, investors are more likely to outperform the market in the long term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.