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Chuck Royce is Buying These Stocks Right Now

Royce & Associates, a fund managed by Chuck Royce (research Royce & Associates’ portfolio over time), issued several 13G filings or amendments on August 7th. Because Royce is a large fund that often invests in smaller-cap stocks, it frequently triggers filing thresholds as it enters a stock position. Most large fund managers avoid small-cap stocks specifically to avoid tipping off the markets as to their activity in this way, and others worry that positions in small-cap stocks will either be too small to affect their P&L or will be too large (and therefore illiquid) to maintain in a portfolio. Individual investors do not have to worry about the first constraint at all, and have to worry less about the second one, so studying the activity of successful managers in smaller-cap stocks can be useful. Here are some stocks that Royce either bought or sold where it had a large enough position to necessitate a 13G filing:

Chuck Royce

Royce reported ownership of 6.6 million shares of Adtran Inc (NASDAQ:ADTN), which provides communications network solutions for both wireline and wireless networks. At the end of March Royce had owned 5.8 million shares, so the fund has been increasing its position. We covered an insider buy at Adtran last month. As things currently stand, Adtran Inc (NASDAQ:ADTN) is down 26% year to date after it reported an earnings miss in July. The company now trades at P/E multiples of 14, on both a trailing and a forward basis, as sell-side analysts expect a very small decline in earnings in the near-term. Chuck Royce had taken a loss on its existing Adtran position and seems to be doubling down on the company here.

The $600 million market cap materials company ATMI Inc (NASDAQ:ATMI) provides its products to microelectronics and biopharmaceutical customers. It has missed earnings estimates in both quarters so far in 2012 and is down about 8% on the year. Royce’s report of 3.3 million shares worth of ownership- compared to the 2.9 million shares which it owned at the end of the first quarter- gives it over a 10% stake in the company. No other hedge fund tracked by Insider Monkey has more than $2.5 million invested. ATMI Inc (NASDAQ:ATMI) is unprofitable on a trailing basis, with sell-side optimism assigning it a forward P/E of 12.

The fund now owns a little over 700,000 shares of Oplink Communications Inc (NASDAQ:OPLK), which provides optical networking products. This is down from the 1.6 million shares that it had reported at the end of March. Oplink Communications Inc (NASDAQ:OPLK) has sunk 18% so far in 2012 and in its most recent quarter saw earnings fall 65% compared to the same period in the previous year. The stock trades at ten times trailing earnings but 17 times forward earnings, meaning that sell-side analysts expect that its business will decline further.

Obagi Medical Products Inc (NASDAQ:OMPI), which has recently been discussed as a potential acquisition target, also saw a sell-off in it shares held by Royce. The fund now owns 600,000 shares, which while still representing 3% of the company is down from the 1.8 million that it owned at the end of the first quarter. Obagi Medical Products Inc (NASDAQ:OMPI) began the year at about $10, rose to a high of over $17 in July, and closed on August 7th at $12.61 in line with the rumors of its acquisition. Jacob Gottlieb’s Visium Asset Management is also bullish about the stock with nearly a 1.5 million share position at the end of March.

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