Though Nygren has not yet released his second quarter portfolio, he discussed his three new purchases in his quarterly letter, out today. The fund manager sold his Dell (DELL) shares after “a private equity firm that we believed had proprietary information walked away from its proposed transaction.” He bought Apache Corp. (APA), General Motors (GM) and National Oilwell Varco (NOV).
Apache Corp. (APA)
Nygren bought Apache Corp. shares priced at $84.
Here are his comments on the new holding from his investor letter:
“Apache is a large oil and gas exploration and production company operating both within and outside of the United States. The stock is down from a high of $149 reached in 2008 when natural gas prices were higher and from $134 in 2011 before it missed optimistic production growth targets. Disappointed investors pushed the stock to a low of $68 last quarter. Pessimism has left growth expectations so low that we now believe they will likely be exceeded. More importantly, management has changed its tune regarding its stock .Previously, like many of its peers, Apache management emphasized absolute growth without regard to per share growth. So our ears perked up when management said that, because the acquisition market valued Apache’s assets at higher multiples than the stock market, the company would begin to divest assets and use proceeds to repurchase undervalued stock. Selling at just nine times consensus earnings estimates for 2014 and with expectations of good capital allocation, we believe Apache is an attractive addition to our portfolio.”
Previously, Apache bought back shares at a rate of -4.8% over the past five years, meaning its share count actually expanded. In its first quarter release of May 9, the company announced it would divest $4 billion in assets by the end of the year in order to reduce debt, enhance financial flexibility and repurchase $2 billion worth of shares. ‘
Apache’s shares are up 4.15% year to date. Below is an overview of its 10-year revenue and earnings history:
It currently has a P/E of 17.1, P/B of 1.1 and P/S of 1.9.
General Motors (GM)
Nygren’s purchase price for General Motors was $33. The stock gained 25.36% year to date, to trade for $36.14 on Thursday.
General Motors is the largest U.S.-based car and truck manufacturer. A high cost structure and a mountain of employee pension and post-retirement healthcare liabilities put GM into bankruptcy in 2009. A restructured GM - smaller, more efficient, and unburdened of most unfunded off-balance sheet liabilities – came back to the public equity market in 2010 at a price of $33. Despite a strong stock market, GM stock traded at only $27 earlier this year. We have been positive on the prospects for the auto market, believing that many investors focus too much on auto demand cycles in the U.S. and Europe, instead of on the strong secular growth in emerging markets, which now account for more sales than either the U.S. or Europe. And despite GM’s struggles, it has built very strong positions in these growing markets while maintaining its dominant, and highly profitable, position in North American pick-up trucks. We believe that with a management team that can now focus on building cars and trucks, instead of serving its retirees, and with a stock priced at less than 8 times 2014 earnings estimates, GM has become an attractive investment.
In 2008, General Motors shouldered $100.97 billion in debt. Since the bankruptcy, it has lightened that load to $59.65 billion, at the end of the first quarter of 2013.
For its first quarter of 2013 results, GM reported net income of $900 million, a slight decline from $1.0 billion the previous year. Revenue also declined to $36.9 billion, compared to $37.8 billion. EBIT either declined or was even in each of its geographic segments, although GM Europe reported $0.2 billion losses, compared to $0.3 billion the previous year.
The company will also introduced 40 new vehicles around the world in 2013.
Below is its revenue and earnings history since emerging from bankruptcy:
National Oilwell Varco (NOV)
Nygren’s price per share for his new National Oilwell Vacro stake was $69. Below are his comments on the company:
“National Oilwell is one of the world’s largest providers of equipment for oil and gas drilling. Drill rig equipment accounts for about half its sales with the other half a diverse assortment of pipes, pumps, tools, consumables and a distribution business. Last year the stock reached $90, which was 14 times earnings plus amortization. Earnings in the first half of this year are expected to be down about 5%, primarily due to decreased drilling caused by lower natural gas prices. Despite the relatively small dip in earnings, the stock fell 30% to a low of $63 this past quarter. We expect earnings to begin to recover later this year, and we believe that next year could be the most profitable in the company’s history. Earnings growth should be led by a rebound in the global land rig count, continued strong deepwater equipment orders and the benefits reaped from several meaningful acquisitions. Though National Oilwell’s stock has recovered somewhat, it is still priced at less than 10 times estimated 2014 earnings plus amortization. Given that National Oilwell controls more than 50% of the deepwater equipment market and the company’s very high returns on tangible capital, we believe the current valuation is attractive.”
National Oilwell’s share price has gained 7% overall this year, and trades for $73.33 on Thursday after a strong month.
In just the past several months, the company has acquired three companies: CE Franklin, Wilson and Robbins & Myers.
In the first quarter, it announced a dip in net income to $502 million, compared to $668 million the previous year, primarily due to charges from its acquisition of Robbins & Myers, and charges related to the devaluation of Venezuelan currency. Revenues also declined 7% to $5.31 billion. The CEO said in the earnings statement that he expects continued improvement in international business, strong industry demand and interest in several of its product offerings. He also expects that when a North American recovery goes into effect other companies’ resources will be exhausted and demand for theirs will increase.
See the company’s 10-year revenue and earnings history below:
National Oilwell has a P/E of 13.1, P/B of 1.5 and P/S of 1.48.
To see Bill Nygren’s Oak Mark Fund portfolio, go here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Bill Nygren.