Causeway Capital Management, the Los Angeles-based firm founded by Sarah Ketterer (Trades, Portfolio) and Harry Hartford in 2001, seeks to achieve superior risk-adjusted returns by investing in mispriced equities in both developed as well as emerging markets.
The guru and her team look for potential opportunities among mid- and large-cap companies using quantitative and value-oriented methods. Each stock also receives a risk score based on the additional volatility or risk it adds to the portfolio. The investment team then enters positions in the stocks with the highest expected risk-adjusted return that also have a lower price-earnings ratio and higher dividend yield than the market.
As of the end of the second quarter, the consumer cyclical sector had the second-largest representation in Ketterer’s $4.9 billion equity portfolio with a weight of 17.93%.
According to GuruFocus portfolio data, Ketterer’s five largest consumer cyclical holdings as of the end of the three months ended June 30 were Alibaba Group Holding Ltd. (BABA, Financial), JD.com Inc. (JD, Financial), Booking Holdings Inc. (BKNG, Financial), Las Vegas Sands Corp. (LVS, Financial) and WestRock Co. (WRK, Financial).
Alibaba Group
In the second quarter, Ketterer curbed her stake in Alibaba (BABA, Financial) by 10.41% to 1.74 million shares. The position accounts for 8.06% of the equity portfolio and is the third-largest holding overall. GuruFocus estimates she has gained 44.99% on the investment since establishing it in the fourth quarter of 2015.
The Chinese e-commerce company, which operates the country’s most-visited online marketplaces, including Taobao and Tmall, has a $429.44 billion market cap; its shares were trading around $159.54 on Friday with a price-earnings ratio of 19.31, a price-book ratio of 2.84 and a price-sales ratio of 3.71.
The GF Value Line suggests the stock is significantly undervalued currently based on historical ratios, past performance and future earnings projections.
GuruFocus rated Alibaba’s financial strength 7 out of 10. The company has a good cash-debt ratio, a comfortable level of interest coverage and a robust Altman Z-Score of 4.12, indicating it is in good standing. The return on invested capital also eclipses the weighted average cost of capital, indicating good value creation is occurring as the company grows.
The company’s profitability fared a bit better with an 8 out of 10 rating. Although the operating margin is in decline, Alibaba has strong returns on equity assets and capital that outperform a majority of competitors as well as a moderate Piotroski F-Score of 5, meaning conditions are typical for a stable company. Despite recording consistent earnings and revenue growth, the predictability rank of three out of five stars is on watch. According to GuruFocus, companies with this rank return an average of 8.2% annually over a 10-year period.
Baillie Gifford (Trades, Portfolio) is Alibaba’s largest guru shareholder with a 0.95% stake. Other top guru investors include PRIMECAP Management (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Dodge & Cox, Frank Sands (Trades, Portfolio), Pioneer Investments, Chase Coleman (Trades, Portfolio), Chris Davis (Trades, Portfolio), Al Gore (Trades, Portfolio), Ron Baron (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Tweedy Browne (Trades, Portfolio), Tom Russo (Trades, Portfolio), Ray Dalio (Trades, Portfolio), David Herro (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).
JD.com
The guru trimmed her stake in JD.com (JD, Financial) by 14.84% during the quarter to 1.5 million shares, which represent 2.53% of the equity portfolio and is her seventh-largest holding. GuruFocus data shows Ketterer has gained an estimated 84.84% on the investment since the third quarter of 2019.
The Chinese e-commerce company has a market cap of $121.34 billion; its shares were trading around $78.34 on Friday with a price-earnings ratio of 22.76, a price-book ratio of 3.6 and a price-sales ratio of 0.96.
According to the GF Value Line, the stock is modestly overvalued currently.
JD.com’s financial strength was rated 7 out of 10 by GuruFocus, driven by adequate interest coverage and a high Altman Z-Score of 4.26. The ROIC, however, is overshadowed by the WACC, suggesting issues with creating value.
The company’s profitability did not fare as well, scoring a 4 out of 10 rating. Even though returns top over half of its industry peers, the operating margin is underperforming versus other companies. JD.com also has a high Piotroski F-Score of 7, indicating business conditions are healthy.
Of the gurus invested in JD.com, Coleman has the largest stake with 3.31% of outstanding shares. Andreas Halvorsen (Trades, Portfolio), Fisher, Catherine Wood (Trades, Portfolio), Dodge & Cox, Davis, Pioneer Investments, Daniel Loeb (Trades, Portfolio), Baillie Gifford (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Dalio also have significant positions in the stock.
Booking Holdings
The investor reduced her position in Booking Holdings (BKNG, Financial) by 0.41% during the quarter. She now holds 46,617 shares, which account for 2.08% of the equity portfolio. GuruFocus data shows she has gained an estimated 23.07% on the investment since the third quarter of 2020.
The Norwalk, Connecticut-based company, which provides online travel booking services, has a $95.91 billion market cap; its shares were trading around $2,331.71 on Friday with a price-earnings of 232.42, a price-book ratio of 19.97 and a price-sales ratio of 13.36.
Based on the GF Value Line, the stock appears to be significantly overvalued currently.
GuruFocus rated Booking’s financial strength 4 out of 10. As a result of issuing approximately $5.6 billion in new long-term debt over the past three years, the company has weak interest coverage. The robust Altman Z-Score of 5.19, however, indicates it is in good standing despite recording losses in operating income over the past several years. The ROIC has also fallen below the WACC, suggesting the company struggles to create value while growing.
The company’s profitability fared better with a 7 out of 10 rating. Although the operating margin is in decline, Booking is supported by returns that outperform over half of its competitors. It also has a moderate Piotroski F-Score of 4. The one-star predictability rank is also on watch as a result of revenue per share declining over the past five years. GuruFocus says companies with this rank return an average of 1.1% annually.
With a 2.19% stake, Dodge & Cox is Booking’s largest guru shareholder. Pioneer Investments, Baillie Gifford (Trades, Portfolio), First Eagle, Diamond Hill Capital (Trades, Portfolio), Bill Nygren (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio) and a number of other gurus also own the stock.
Las Vegas Sands
Ketterer boosted her Las Vegas Sands (LVS, Financial) holding by 8.69% in the most recent quarter. Representing 1.42% of the equity portfolio, she now owns 1.3 million shares. GuruFocus says she has lost an estimated 13.8% on the investment since the third quarter of 2020.
The casino and resort operator, which is headquartered in Las Vegas, has a market cap of $28.83 billion; its shares were trading around $37.77 on Friday with a price-book ratio of 11.58 and a price-sales ratio of 7.04.
The GF Value Line suggests the stock is significantly overvalued currently.
Las Vegas Sands’ financial strength was rated 2 out of 10 by GuruFocus. As a result of issuing approximately $3 billion in new long-term debt over the past three years, the company has poor interest coverage. The low Altman Z-Score of 1.22 also warns the company could be at risk of going bankrupt if it does not improve its liquidity.
The company’s profitability scored a 6 out of 10 rating on the back of negative margins and returns that underperform a majority of industry peers. Las Vegas Sands also has a low Piotroski F-Score of 3, indicating operations are in poor shape, while the one-star predictability rank is on watch as a result of recording declines in revenue per share and losses in operating income over the past several years.
Barrow, Hanley, Mewhinney & Strauss is the company’s largest guru shareholder with a 0.78% stake. The T Rowe Price Equity Income Fund (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Primecap Management also have significant positions in Las Vegas Sands.
WestRock
The guru increased her WestRock (WRK, Financial) stake by 19.74% to 1.2 million shares. The stock represents 1.33% of the equity portfolio. GuruFocus data shows Ketterer has lost an estimated 1.2% on the investment since establishing it in the first quarter.
The Atlanta-based company, which produces paper and packaging products, has a $13.36 billion market cap; its shares were trading around $49.94 on Friday with a price-book ratio of 1.17 and a price-sales ratio of 0.73.
According to the GF Value Line, the stock is modestly overvalued currently.
GuruFocus rated WestRock’s financial strength 4 out of 10 on the back of insufficient interest coverage and a low Altman Z-Score of 1.2 that warns the company could be in danger of going bankrupt. Assets are building up at a faster rate than revenue is growing, indicating issues with efficiency. Similarly, the WACC surpasses the ROIC, indicating struggles to create value.
The company’s profitability scored a 6 out of 10 rating, driven by an expanding operating margin. Its returns, however, underperform a majority of competitors. WestRock also has a moderate Piotroski F-Score of 4, but the one-star predictability rank is on watch as a result of a slowdown in revenue per share growth over the past year.
Ketterer is by far WestRock’s largest guru shareholder with 0.46% of its outstanding shares. Pioneer Investments, Robert Olstein (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Dalio also own the stock.
Additional holdings in the consumer cyclical space
Other stocks Ketterer owns in the consumer cyclical sector as of the end of the second quarter are Berry Global Group Inc. (BERY, Financial), Yum China Holdings Inc. (YUMC, Financial), Vipshop Holdings Ltd. (VIPS, Financial), MercadoLibre Inc. (MELI, Financial), Tata Motors Ltd. (TTM, Financial) and Trip.com Group Ltd. (TCOM, Financial).
