Bill Nygren (Trades, Portfolio) disclosed the Oakmark Fund’s second-quarter portfolio earlier this week.
To achieve long-term capital appreciation, the renowned guru, who also manages the Chicago-based firm’s Select and Global Select funds, usually invests in mid- and large-cap companies. When picking stocks, he looks for growing companies that have shareholder-oriented management teams. According to the fund’s fact sheet, he prefers to take a position when the stock is trading at a substantial discount to his estimate of intrinsic value, then waits for the gap between the two to close before selling.
In his market commentary for the three months ended June 30, Nygren discussed the “bad quarter” as the S&P 500 Index entered a bear market after falling more than 20%. He wrote:
“We encourage investors to take advantage of increased volatility and price declines. If you began the year with your assets appropriately divided across cash, bonds and equities, the large declines in bonds and equities have increased the percentage of your portfolio represented by cash. Investing some of that cash now would move you back to your target weightings. As value investors, most of the Oakmark managers are wired to buy opportunistically, especially after declines.”
Keeping these considerations in mind, the NPORT-P filing showed Nygren established six new positions during the quarter, sold out of seven stocks and added to or trimmed a slew of other existing investments. Notable trades included a new stake in Amazon.com Inc. (AMZN, Financial), a reduced bet on Humana Inc. (HUM, Financial) and the divestment of the Constellation Brands Inc. (STZ, Financial), Keurig Dr Pepper Inc. (KDP, Financial) and DXC Technology Co. (DXC, Financial) holdings.
Investors should be aware that, just like 13F reports, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, they collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these limited filings can provide valuable information.
Amazon
The guru invested in 2.53 million shares of Amazon (AMZN, Financial), allocating 2.04% of the equity portfolio to the stake. The stock traded for an average price of $125.73 per share during the quarter.
The Seattle-based e-commerce giant has a $1.31 trillion market cap; its shares were trading around $127.87 on Tuesday with a price-earnings ratio of 115.01, a price-book ratio of 9.95 and a price-sales ratio of 2.71.
The GF Value Line suggests the stock is significantly undervalued currently based on historical ratios, past financial performance and analysts’ future earnings estimates.
In his commentary, Nygren remarked on Amazon’s “strong customer loyalty and massive infrastructure.” Based on these factors, along with the purchase price and valuation of Amazon Web Services, he felt investors are not “paying much of anything for the immensely valuable e-commerce franchise.”
GuruFocus rated Amazon’s financial strength 6 out of 10. In addition to adequate interest coverage, the company has a high Altman Z-Score of 4.26, indicating it is in good standing even though assets are building up at a faster rate than revenue is growing. The return on invested capital is being overshadowed by the weighted average cost of capital, however, so the company is struggling to create value as it grows.
The company’s profitability scored a 9 out of 10 rating due to operating margin expansion, strong returns on equity, assets and capital that top over half of its competitors and a moderate Piotroski F-Score of 5 out of 9, meaning conditions are typical for a stable company. As a result of a slowdown in revenue per share growth, Amazon’s predictability rank of five out of five stars is on watch. According to GuruFocus research, companies with this rank return an average of 12.1% annually over a 10-year period.
Of the many gurus invested in Amazon, Ken Fisher (Trades, Portfolio) has the largest stake with 0.48% of its outstanding shares. Baillie Gifford (Trades, Portfolio), Frank Sands (Trades, Portfolio), Al Gore (Trades, Portfolio), Warren Buffett (Trades, Portfolio), Steve Mandel (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Chris Davis (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio) and several other gurus also have significant positions in the stock.
Humana
The investor curbed the Humana (HUM, Financial) holding by 74.12%, selling 610,000 shares. The transaction had an impact of -1.58% on the equity portfolio. During the quarter, shares traded for an average price of $444.79 each.
Nygren now holds 213,000 shares total, which represent 0.76% of the equity portfolio. GuruFocus estimates he has gained 40.69% on the investment so far.
The health insurance company headquartered in Louisville, Kentucky has a market cap of $61.75 billion; its shares were trading around $486.57 on Tuesday with a price-earnings ratio of 19.92, a price-book ratio of 3.99 and a price-sales ratio of 0.70.
According to the GF Value Line, the stock is fairly valued currently.
Humana’s financial strength was rated 6 out of 10 by GuruFocus. Despite the company issuing new long-term debt over the past three years, it is at a manageable level since the company has sufficient interest coverage. The ROIC also eclipses the WACC, indicating value is being created.
The company’s profitability fared better with an 8 out of 10 rating, driven by strong margins and returns that outperform a majority of industry peers. Humana also has a high Piotroski F-Score of 7, suggesting operations are healthy. Due to consistent earnings and revenue growth, it also has a three-star predictability rank. GuruFocus data shows companies with this rank return an average of 8.2% annually.
With a 1.73% stake, the Vanguard Health Care Fund (Trades, Portfolio) is the company’s largest guru shareholder. Other top guru investors of Humana include Diamond Hill Capital (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Steven Cohen (Trades, Portfolio), Hotchkis & Wiley and Lee Ainslie (Trades, Portfolio).
Constellation Brands
Impacting the equity portfolio by -2.11%, Nygren exited the 1.5 million-share position in Constellation Brands (STZ, Financial). The stock traded for an average per-share price of $243.17 during the quarter.
GuruFocus says he gained an estimated 35.30% on the investment over its lifetime.
The New York-based company, which produces and markets beer, wine and spirits, has a $46.98 billion market cap; its shares were trading around $250.09 on Tuesday with a price-earnings ratio of 37.78, a price-book ratio of 4.09 and a price-sales ratio of 5.35.
Based on the GF Value Line, the stock appears to be modestly overvalued.
GuruFocus rated Constellation’s financial strength 5 out of 10 on the back sufficient interest coverage. The Altman Z-Score of 3.44 also indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC exceeds the WACC, so value creation is occurring.
The company’s profitability fared better, scoring an 8 out of 10 rating due to an expanding operating margin and returns that are outperforming versus competitors. Constellation also has a moderate Piotroski F-Score of 4 and a one-star predictability rank. GuruFocus found companies with this rank return, on average, 1.1% annually.
Jeremy Grantham (Trades, Portfolio) is now the company’s largest guru shareholder with a 0.38% holding. Ray Dalio (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Cohen, Diamond Hill, PRIMECAP Management (Trades, Portfolio), Robert Karr (Trades, Portfolio) and several other gurus also have positions in Constellation Brands.
Keurig Dr Pepper
With an impact of -1.94% on the equity portfolio, the guru dumped all 8.57 million shares of Keurig Dr Pepper (KDP, Financial). The stock traded for an average price of $36.32 per share during the quarter.
GuruFocus data shows he gained approximately 15.98% on the investment since establishing it in the third quarter of 2020.
The beverage company headquartered in Burlington, Massachusetts, which manufactures K-Cup coffee pods for Keurig brewers as well as other soft drinks, has a market cap of $54.61 billion; its shares were trading around $38.56 on Tuesday with a price-earnings ratio of 25.38, a price-book ratio of 2.14 and a price-sales ratio of 4.16.
The GF Value Line suggests the stock is fairly valued currently.
Keurig’s financial strength was rated 5 out of 10 by GuruFocus. In addition to insufficient interest coverage, the Altman Z-Score of 1.76 warns the company could be at risk of bankruptcy. The WACC also surpasses the ROIC, so it is struggling to create value.
The company’s profitability scored a 7 out of 10 rating, driven by operating margin expansion. Its returns, however, are underperforming over half of its industry peers. Keurig Dr Pepper is also being supported by a high Piotroski F-Score of 7. Although it has recorded a decline in revenue per share growth in recent years, the company still has a one-star predictability rank.
Of the gurus invested in Keurig Dr Pepper, Simons’ firm has the largest stake with 0.49% of its outstanding shares. Dalio, Robert Olstein (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Grantham, Ainslie, Jeff Auxier (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) also own the stock.
DXC Technology
The investor closed the 6.52 million-share holding in DXC Technology (DXC, Financial), which had an impact of -1.27% on the equity portfolio. During the quarter, the stock traded for an average per-share price of $31.05.
GuruFocus projects Nygren lost an estimated 19.82% on the investment, which was established in the third quarter of 2019.
The Ashburn, Virginia-based provider of information technology services has a $5.60 billion market cap; its shares were trading around $24.36 on Tuesday with a price-earnings ratio of 11.02, a price-book ratio of 1.19 and a price-sales ratio of 0.38.
According to the GF Value Line, the stock is currently modestly undervalued.
GuruFocus rated DXC Technology’s financial strength 5 out of 10. In addition to poor interest coverage, the company is being weighted down by a low Altman Z-Score of 1, which cautions it may be in danger of going bankrupt. It is also struggling to create value since the WACC outshines the ROIC.
The company’s profitability scored a 6 out of 10 rating. Despite having declining margins, returns are outperforming over half of its competitors. DXC Technology also has a high Piotroski F-Score of 8, but the one-star predictability rank is on watch as a result of a decline in revenue per share.
With a 3.45% stake, Larry Robbins (Trades, Portfolio) is DXC Technology’s largest guru shareholder. It is also being held by Dalio, Greenblatt and Chris Davis (Trades, Portfolio).
Additional trades and portfolio performance
During the quarter, Nygren also entered positions in Masco Corp. (MAS, Financial), Oracle Corp. (ORCL, Financial), Liberty Broadband Corp. (LBRDK, Financial), Parker Hannifin Corp. (PH, Financial) and The Walt Disney Co. (DIS, Financial).
The Oakmark Fund’s $13.19 billion equity portfolio, which is composed of 56 stocks, is most heavily invested in the financial services sector.
GuruFocus data shows the fund returned 34.2% in 2021, outperforming the S&P 500’s 28.7% return.
