John Rogers’ Top 10 Stock Picks

In this article, we shared Ariel Investments’ founder John Rogers’ top 10 stock picks. You can skip our detailed discussion of Rogers’ investment philosophy, his fund’s performance and go directly to John Rogers’ Top 5 Stock Picks.

John Washington Rogers is an American hedge fund manager and investor who founded Ariel Investments in 1983. The Illinois-based hedge fund has over $8.9 billion in managed securities, with a net annualized return of 10.75% from its inception through November 2020. The 62-year-old investor, who is one of the few black hedge fund managers in the country, recently launched Ariel Alternatives, a fund that will invest in and scale sustainable minority-owned businesses. JP Morgan is backing the fund with a $200 million commitment.

Investment Philosophy of John Rogers

John Rogers was raised in the Hyde Park community area of Chicago’s South Side. His passion for stocks and investing began when his father gave him stocks as a gift on his 12th birthday. He studied economics and graduated from Princeton in 1980. Right after college, he worked for the independent investment bank William Blair & Company before starting his own firm in July 1983 through the financial support of family and friends. Ariel Capital Management went public on November 6, 1986. It started with $10,000 worth of assets under management and later turned into a billion-dollar business in a 20-year span. Ariel Capital Management was eventually rebranded to Ariel Investments, LLC in 2008. John Rogers Jr. is a firm believer in the phrase ‘slow and steady wins the race’ and that’s why he patiently searches for companies that look pretty undervalued and holds them for at least 3 years or more until they reach their ultimate potential.

Rogers served on the board of many educational organizations, including the University of Chicago Laboratory Schools and the Oprah Winfrey Foundation. He invested a lot of his time, money, and effort into spreading financial literacy among the youth. A notable thing he did was establishing the Ariel Community Academy in 1996. The academy is  focused on teaching finance and investing to young people. They let their students manage an actual investment portfolio. Their returns were spectacular, consistently beating the pros of Chicago and some of The Wall Street’s finest. Half of the profits from their portfolio at the end of the school year are given to graduating students to help them finance their college expenses.

John Rogers’ Top 10 Stock Picks

John Rogers of Ariel Investments

In a segment of Invaluable Insights, John W. Rogers mentioned that the market will have a V-shaped recovery. He also said that the S&P 500 will outperform in the next 3 years and that the Dow Jones will be higher a year from now.

“The S&P 500 is too hot but the value of it is just at a very appropriate price.”

John Rogers’ on the Economy After the Capitol Attack

“The whole thing was a surprise. It became clear that Georgia is going to elect 2 democratic senators and on top of that the investment we had .. my projection was that we wouldn’t have a down market. It’s very much of a surprise. It’s just a reminder of what we all believe in, that long-term investing is the best way to invest. It’s best not to try to do market timing. The market has an amazing way to discount the future and to not worry about the current emotions at the moment.  Even though I was wrong in my thinking, it did not change anything that I did on a day-to-day basis albeit I invested in our portfolios.”

Answering a question about the possible rise of inflation and the hefty stimulus package, Rogers said:

“Back in May(2020), we talked to our favorite economists, Bob Aliber from the University of Chicago, and Burton Malkiel who wrote ‘A Random Walk Down Wall Street’ and other experts on the history of the markets. There’s really a strong sense that the higher interest rates are coming, they are inevitable with all the money that has been spent. And I’m okay with that. I think it will actually be helpful to some parts of our economy that has higher rates, particularly the banks. Some financial services companies will benefit from higher rates so it’s not all bad. Obviously, P/E multiples will go down especially in larger, high-flying stocks because they’ve been propped out by these historic low rates. I do think that we will have higher inflation and higher rates will follow and that will happen sooner, much sooner than most people anticipated… Much closer to a year than 2 years.”

Commenting about the Fed’s policy of keeping the rates unchanged, he said:

“I think they’ll be forced to change. Once they see everyone comes back from COVID, everyone’s going to be on shopping and traveling and going to restaurants. We have the much higher stimulus, coming from the Democratic leadership. All these things, when it comes together, will I think, force the Fed’s hand.”

“We Are Going to Have Our Day in the Sun”

Talking about asset allocation, Rogers said:

I will aggressively be getting more engaged and more involved in value stocks in the undervalued parts of the marketplace. Observing in a number of investment communities, the number of time I’ve been sitting on a media recently where consultants come in and say, ‘Fire the value managers’, ‘Get rid of the value managers. They’re never gonna outperform’, this time it’s different. These hot tech stocks will only go up.  There is a program that helps 8th graders be exposed in the stock market, working with big shoulders to our largest cap of charity here in town. About the 60 classes mentored by many financial executives and over 90% of those 60 schools outperformed the S&P 500 last year. All these 8th graders were performing all the work that we all do because they all own the same names. All the FANG stocks, the Tesla, etc. It’s like shooting ducks in a barrel. It’s too easy. And again, whenever everyone thinks that ‘this time it’s different,’ you can get rich by buying all the same names that have gone up the most from last year. It’s a sign that we’re really ‘top heavy‘. So for those asking about asset allocations, I would say that it’s about time to get on the bandwagon and believe in value. It will come back and it will last for a very very long time. For all the sufferings we’ve done, we deserve at least a decade. We never know whether it’s 3 years, 5 years, or 10 years, but we’re gonna look back and realize this was a great opportunity to find bargains and we’re going to have our day in the sun.”

John Rogers’ Pandemic Investment Strategy: Have a Long-Term Mindset 

“One of the things I often talk about is our mutual friend, Warren Buffet, and his perspective that you ‘always think long-term’. Our capitalist democracy here in America is the best thing that has ever been invented. We resolve our problems, we get through them, and if you think with the perspective of looking forward, it allows you to make better decisions. These companies were getting crushed during the height of the pandemic. People did not believe in them. It was an opportunity to buy some extraordinary brands at bargain prices.” [source]

We can say that John Rogers did a pretty good job by aggressively investing in value stocks. However, the same can’t be said of the whole hedge fund industry because its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Let’s start our list of John Rogers’ top 10 stock picks.

10. Kennametal Inc. (NYSE: KMT)

Value: $221,550,000
Change in Position Size: 3%
Percent of John Rogers’ 13F Portfolio: 2.5%

Pennsylvania-based Kennametal Inc. is a producer of orchestrated components and materials used in production processes. The company’s main business is related to infrastructure and industrial sectors. Kennametal’s share price recently jumped 7.41% and settled at $40.13 per share as of March 1. With a $3.4 billion market capitalization, KMT delivered a decent 45.56% return in the past 12 months.

As of the end of the fourth quarter, 14 hedge funds in Insider Monkey’s database of 887 funds held stakes in Kennametal Inc., compared to 16 funds in the third quarter. John Roger’s Ariel Investments is the biggest stakeholder in the company, with 6.1 million shares, worth $221.6 million.

9. First American Financial Corporation (NYSE: FAF)

Value: $225,549,000
Change in Position Size: 24%
Percent of John Rogers’ 13F Portfolio: 2.5%

California-based First American Financial Corporation supplies extensive title insurance protection and premier settlement solutions for a variety of clients. For the fourth quarter of 2020, the company reported a 24% increase in its total revenue of $2.2 billion. The company’s net realized investment gains in the recent quarter is $55.5 million or $0.38 per diluted share. FAF delivered a commercial revenue worth $226.6 million, down by 5% compared to last year’s figure. First American Financial Corporation ranks 76th in the Fortune 100 Best Companies to Work For 2020 list.

According to our database, the number of FAF’s long hedge funds positions decreased at the end of the fourth quarter of 2020. There were 39 hedge funds that hold a position in First American Financial Corporation by the end of December, compared to the 42 funds in the third quarter. The biggest stakeholder of the company is Ariel Investments, with 4.4 million shares, worth $225.5 million.

Ensemble Capital Management, in their Q4 2020 Investor Letter, said that First American Financial Corporation (NYSE: FAF) is one of the detractors of their Q4 performance.

Here is what Ensemble Capital Management has to say about First American Financial Corporation in their investor letter:

“A notable detractor from our performance came from our investment in First American Financial Corporation. The stock of this title insurance company is our only holding that generated negative returns in 2020. With the company generating revenue from both existing and new home transactions, we think it will benefit greatly from our thesis that home activity has been depressed and will increase significantly in the years ahead. The stock rebounded from the pandemic driven sell off from March to July but has been relatively flat since then. It generated a return of just over 2% in the fourth quarter. While there are some valid concerns about an outstanding legal case related to a cybersecurity breach in 2019, the stock trades at just nine times its pre-pandemic 2019 reported earnings.”

8. Nielsen Holdings plc (NYSE: NLSN)

Value: $228,062,000
Change in Position Size: 44%
Percent of John Rogers’ 13F Portfolio: 2.6%

New York-based Nielsen Holdings is a premier data analytics and measurement firm that provides a deep understanding of what consumers look at the most, what they buy, and how their choices coincide or intersect. In their fourth-quarter 2020 report, Nielsen Holdings declared that their revenues are down 1.1% to $1.6 billion. The company delivered a $35 million net income in the recent quarter compared to a $109 million net loss in the same quarter last year. Overall, Nielsen’s 2020 revenue was $6.2 billion, down 3.2% on a reported basis.

There were 34 hedge funds in our database that held stakes in NLSN, compared to 30 funds in the third quarter. Windacre Partnership is the biggest stakeholder in the company.

7. The Interpublic Group of Companies, Inc. (NYSE: IPG)

Value: $229,135,000
Change in Position Size: 2%
Percent of John Rogers’ 13F Portfolio: 2.6%

The Interpublic Group of Companies ranks 7th on our list of John Rogers’ top 10 stock picks. The company offers consumer advertising, digital marketing, media buying, and other related services. In their fourth-quarter 2020, IPG performed above their expected results. The company’s adjusted earnings of $0.86 per share outperformed Zacks Consensus Estimate by 4.9%. With a $10.5 billion market capitalization, IPG delivered a decent 17.97% return in the past 3 months and settled at $26.79 per share at the closing of March 1, 2021.

As of the end of the fourth quarter, 38 hedge funds in Insider Monkey’s database of 887 funds held stakes in IPG, compared to 31 funds in the third quarter. Harris Associates is the biggest stakeholder in the company, with 12.3 million shares, worth $289.9 million.

6. Lazard Ltd (NYSE: LAZ)

Value: $234,400,000
Change in Position Size: 1%
Percent of John Rogers’ 13F Portfolio: 2.6%

Lazard Ltd is one of the premier financial services and asset management companies in the world. The company offers investment banking services and serves a range of clients that includes corporations, private and government institutions, and individuals. Lazard delivered a GAAP net income of $402 million or $3.54 per share for 2020 and a GAAP net income of $190 million or $1.64 per share, for the fourth quarter of 2020.

With a $234.4 million stake in Lazard Ltd, Ariel Investments owns 5.5 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 20 hedge funds held stakes in LAZ as of the end of the fourth quarter, versus the 19 funds in the third quarter.

In their Q3 2020 Investor Letter, Longleaf Partners highlighted a few stocks and Lazard Ltd (NYSE:LAZ) is one of them. Here is what Longleaf Partners said:

“Lazard (17%, 0.96%), the global asset management and investment banking company, was also a top contributor. During the quarter, Lazard’s AUM grew 11% as international markets rallied, and management revealed a strong backlog of new accounts to drive future inflows. Financial advisory revenues declined 11% YOY with the depressed number of M&A transactions outweighing strong growth in restructuring work. CEO Ken Jacobs has done excellent work to maintain the company’s profitability by reducing costs more than 10% in a challenging market environment. As earnings rebound with an improving 2021 M&A environment, we expect further strong appreciation from Lazard’s undervalued shares. In the meantime, Lazard’s free cash flow funds a hefty 5% dividend. The recent news of Morgan Stanley acquiring an inferior peer to Lazard Asset Management for a high multiple, as well as activists taking stakes in peers Janus Henderson and Invesco, should help to highlight the value of Lazard’s differentiated international asset management business. Lazard remains highly discounted versus our appraisal value, which has been growing again after the initial COVID pain.”

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Disclosure: None. John Rogers’ Top 10 Stock Picks is originally published on Insider Monkey.