The Oakmark International Fund, managed by David Herro (Trades, Portfolio) and Michael Manelli, has revealed its portfolio for the first quarter of 2021. Major trades include reductions in Glencore PLC (LSE:GLEN, Financial) and CNH Industrial NV (MIL:CNHI, Financial), new buys into SAP SE (XTER:SAP, Financial) and Capgemini SE (XPAR:CAP, Financial) alongside selling out of the fund’s G4S PLC (LSE:GFS, Financial) holding.
Herro invests in companies expected to grow shareholder value over time and buys businesses that are trading at a significant discount to his estimate of the company's intrinsic value. He seeks out companies with management teams that understand the dynamics of per-share value growth and are focused on achieving such growth. Stock ownership and incentives that align managements' interests with those of shareholders are key components of this analysis.
Portfolio overview
At the end of the quarter, the portfolio contained 65 stocks, with three new holdings. It was valued at $26.52 billion and has seen a turnover rate of 9%. Top holdings include Lloyds Banking Group PLC (LSE:LLOY), Intesa Sanpaolo (MIL:ISP) and Daimler AG (XTER:DAI).
By weight, the top three sectors represented are financial services (27.14%), consumer cyclical (23.92%) and industrials (12.92%).
Glencore
One of the fund’s top holdings, Glencore (LSE:GLEN, Financial), was cut by 31.14% during the quarter with the sale of 125.50 million shares. Throughout the quarter, the shares traded at an average price of 2.76 pounds sterling ($3.91). Overall, the sale had a -1.57% impact on the equity portfolio and GuruFocus estimates the total gain of the holding at 24.43%.
Glencore is one of the world's largest commodities traders, active in markets for metals and minerals, energy products, and agricultural goods. The firm's marketing business provides sourcing, logistics, transportation, storage, and financing services to commodity producers and consumers around the globe. After the 2013 merger with diversified miner Xstrata, the company now ranks as one of the world's largest commodity producers in its own right. Core exposures are in the production of thermal coal, coking coal, copper, zinc, nickel and ferroalloys.
On June 1, the stock was trading at 3.21 pounds sterling with a market cap of 42.83 pounds sterling. According to the GF Value Line, the shares are trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 5 out of 10 and a valuation rank of 3 out of 10. There are currently four severe warning signs issued, including new long-term debt and declining revenue per share. The company’s cash-to-debt ratio of 0.04 ranks it lower than 94.94% of competitors and an Altman Z-Score of 1.58 places the company in the distress column.
SAP
A new holding was established in the fund with the purchase of SAP (XTER:SAP, Financial) shares for the first time since 2015. The holding was established with the purchase of 3.05 million shares that traded at an average price of 105.22 euros ($128.52). GuruFocus estimates the total gain of the holding at 20.88% and the purchase had a 1.41% impact on the equity portfolio.
Founded in 1972 by former IBM employees, SAP provides database technology and enterprise resource planning software to enterprises around the world. Across more than 180 countries, the company serves 440,000 customers, approximately 80% of which are small to medium-size enterprises.
As of June 1, the stock was trading at 113.52 euros per share with a market cap of 133.91 billion euros. The shares are currently trading at a fair value rating according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 5 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The superb profitability rank is propped up by net and operating margins that beat almost 90% of competitors each.
Capgemini
A new holding was established for the fund for the first time with the purchase of Capgemini (XPAR:CAP, Financial). The holding was established with 1.46 million shares that traded at an average price of 133.32 euros. The new buy added 0.94% to the holding and GuruFocus estimates the fund has gained 14.50% on the holding throughout its short lifetime.
Capgemini is a French IT services company with a global presence. The firm has over 450 offices globally, with more than half of its employees based in India. Capgemini provides services related to IT consulting, infrastructure management and business process outsourcing.
The stock was trading at 152.65 euros per share with a market cap of 25.72 billion euros on June 1. The GF Value Line shows the shares trading at a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 3 out of 10. There are currently no severe warning signs issued for the company. The company’s cash flows have seen consistent growth over the last few years in accordance with the strong profitability rank.
CNH Industrial
The first quarter also saw the fund pull back its CNH Industrial (MIL:CNHI, Financial) holding. Herro and Manelli sold 18.23 million shares to reduce the holding by 24.58%. Throughout the quarter, the shares traded at an average price of 11.95 euros. Overall, the sale had a -0.91% impact on the portfolio and GuruFocus estimates the total gain of the holding at 26.88%.
CNH Industrial is a global industrial company that manufactures a range of products, including agricultural equipment, construction equipment, commercial vehicles and powertrain components. It is incorporated in the Netherlands and has its principal office in London. Although the company was formed in 2013, the oldest elements of the organization date back to the 1830s. Total company revenue was about $24 billion in 2020 with approximately 42% of manufacturing revenue generated from agricultural equipment, 8% from construction equipment, 36% from commercial vehicles and the rest from the powertrain segment.
On June 1, the stock was trading at 14.13 euros per share with a market cap of 19.07 billion euros. According to the GF Value Line, the shares are trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rank of 5 out of 10. There are currently six severe warning signs issued for the company, including a declining operating margin and new long-term debt. The company has struggled to maintain positive net income and has seen revenue decrease over the last three years.
G4S
The fund sold out of its G4S (LSE:GFS, Financial) during the quarter. The remaining 62.13 million shares were sold throughout the quarter at an average price of 2.53 pounds sterling. GuruFocus estimates the total gain of the portfolio at 9.28% and the sale had a -0.85% impact on the equity portfolio.
G4S is a multinational security services company and constituent of the FTSE 250 Index. The company was formed through a series of large mergers, most notably in 2004 when British Securicor and Danish Group 4 Falck merged. G4S is now the world's largest security company and has operations in around 90 countries. With over 550,000 employees, it is also the world's third-largest private employer. The company offers a range of services from the supply of security personnel and response units to risk consulting and prison management.
As of June 1, the stock was trading at 2.45 pounds sterling per share with a market cap of 3.83 billion pounds sterling. The GF Value Line shows the shares trading at a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 7 out of 10. There is currently one severe warning sign issued for a declining gross margin percentage. The company’s return on invested capital fluctuated on the edge of profitability before tanking in 2019.
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