Since its inception in September 1992, the Oakmark International Fund has an 11% average annual return, as a result of Herro’s “long-term value philosophy” investing in “high quality names trading at discounts to our estimate of intrinsic value,” he says in his third quarter commentary.
At the end of the quarter, Herro had placed 78% of his holdings in Europe, 14% in Japan and 5% in Australia. The portfolio contains 58 stocks worth $23.15 billion. Herro traded relatively actively during the quarter, with 26% turnover from the second quarter, and bought five new holdings.
The New Buys
CNH Industrial NV (MIL:CNHI)
Herro bought 46,633,000 shares of CNH Industrial NV in the third quarter, when the price averaged $9.50 per share. The price has declined 16% from the average, trading Wednesday for $8 per share. The stock makes up 2.6% of his portfolio.
CNH Industrial is based in the Netherlands and was formed through the merger of Fiat Industrial and CNH Global. It manufactures agricultural and construction equipment as well as trucks, commercial and specialty vehicles and powertrain applications.
The combined company posted third quarter revenues down 1.5% year over year to 6.2 billion euro due to weakness in its construction equipment business. Its net profit was $43 million lower at 248 million euro, or 0.169 euro per share. At the end of the quarter the company had 4.9 billion euro in liquidity, and net industrial debt of 2.5 billion.
Pernod Ricard NV (XPAR:RI)
Herro bought 3,554,000 shares of Pernod Ricard NV in the third quarter when the price averaged $90. The price fell 10% from the average to $80.84 per share on Wednesday. Pernod Ricard is 1.9% of his portfolio.
France-based Pernod Ricard is a producer and distributor of wines and spirits with a wide portfolio of well-known brands.
The company’s growth rates for the past five years are 2.6% for revenue and 9.5% for book value. Its EBITDA declined at a rate of 0.9% and free cash flow also declined at a rate of 6.5% annually over the same period.
Long-term revenue and earnings history:
Pernod is trading near three two-year low valuations: P/E at 18.2, P/B at 1.9 and P/S at 2.5. It pays a dividend yield close to a two-year high, at 2.03%.
Herro bought 846,000 shares of Sanofi, in a position making up 0.37% of his portfolio. The company’s third quarter average share price was $77, but is about 3% lower at $74.81 on Wednesday.
Formerly Sanofi-Aventis, Sanofi is a France-based diversified global health care company focused on a range of issues from diabetes to vaccines and animal health.
Five-year per-share annual growth rates for Sanofi: revenue at 5.5%, EBITDA at 1.2% and book value at 6%. Free cash flow declined as a rate of 0.4%.
Long-term revenue and earnings:
Sanofi’s current trading price verges on a 10-year high, while its P/S ratio also comes close to a five-year high, at 3.1. The company’s dividend yield is almost touching a five-year low at 3.7%. Sanofi also trades with a P/E of 32.6 and P/S of 2.98.
WPP PLC (LSE:WPP)
Herro added a holding of 4,164,000 shares of WPP PLC, costing on average $12 in the third quarter. The price of the holding, which is weighted at 0.37% of his portfolio, has increased 10% from the average to $13.29 Wednesday.
WPP is a marketing communications services company focused on advertising, branding, public relations and other areas of the field. It operates in 110 countries and is based in London.
WPP five-year growth rates per share are: 4.4% for revenue, 1.9% for EBITDA and 4.7% for book value. Free cash flow declines at an annual average rate of 10.2%.
Long-term revenue and earnings history:
Currently, WPP is priced near a 10-year high, and around a five-year high P/S of 1.7. It also has a P/E ratio of 21.3, P/B ratio of 2.49 and dividend yield of 2.3%.
Last, Herro bought a holding of 48,000 Samsung shares weighted at 0.26% of his portfolio.
Samsung is the South Korea-based consumer electronics company, which does business in two divisions focused on consumer electronics, IT and mobile communications; and semiconductor and liquid crystal displays.
Over five years, Samsung achieved the following annual growth rates: revenue at 12.1%, EBITDA at 23.7%, free cash flow at 94.2% and book value at 17.2%.
Long-term revenue and earnings growth:
At a price near its three-year high, Samsung also trades with a P/S of 0.6, around its one-year high. Its dividend yield is near a three-year low, at 0.47%. The company’s P/E is 4.9, and its P/B of 0.95.
For more of David Herro’s international stock trades, go to his Oakmark International Fund portfolio here. Not a Premium Member of GuruFocus? Try it for free for 7 days here!