Bill Nygren (Trades, Portfolio) discussed many of his portfolio moves in his second quarter letter though he has not yet released the details in his second quarter portfolio.
His Oakmark Fund initiated positions in Fiat Chrysler Automobiles (FCAU, Financial) and American Express (AXP, Financial), saying of the financial sector:
“We continue to feel that financial securities are among the most attractive segments in the market, and we were pleased that our financial holdings represented the biggest contributing sector for the Fund during the second quarter.”
Nygren also said six of the 10 top contributors to the fund’s performance were financial securities, led by Bank of America (BAC, Financial), which gained 11%.
The New Buys
American Express
Nygren paid $78 per share for his new American Express stake in the second quarter. Year to date the company’s shares have declined 15% and closed at $78.97 on Tuesday.
American Express Co. began operations as a joint stock association on March 28, 1850. American Express Co. has a market cap of $80.22 billion; its shares were traded at around $78.97 with a P/E ratio of 13.82 and P/S ratio of 2.41. The dividend yield of American Express Co. stocks is 1.35%. American Express Co. had an annual average earnings growth of 9.70% over the past 10 years.
Nygren discussed his view on the company in his shareholder letter:
American Express is a payments company with one of the best brands in the world. Despite strong earnings growth over the past few years, the strength of the franchise was called into question recently when revenue growth slowed. Skepticism increased in February when Costco announced it would not renew its co-brand partnership with American Express. We believe this will cause earnings growth to slow for two years while American Express invests in marketing efforts to replace Costco co-brand customers, but we believe the company’s financial fundamentals remain very healthy. Card member spending is growing 7% per year (f/x adjusted), ROE is well above its 25% target and robust capital levels are allowing management to increase share repurchases. Despite what we believe is favorable secular growth and superior economics, American Express is trading at a large discount to the market and its historical multiples. Our long-term view allows us to look past the short-term disappointment of the Costco announcement and see the potential lucrative long-term value of American Express’ global payment network and growing customer base.
Fiat Chrysler Automobiles (FCAU, Financial)
Nygren paid $15 for his new Fiat Chrysler shares in the second quarter. The company’s share price has increased 25% so far this year, closing at $14.52 on Tuesday.
Fiat Chrysler Automobiles NV was incorporated on July 11, 1899. Fiat Chrysler Automobiles NV has a market cap of $18.7 billion; its shares were traded at around $14.53 with a P/E ratio of 17.37 and P/S ratio of 0.17. Fiat Chrysler Automobiles NV had an annual average earnings growth of 1.70% over the past 10 years.
Nygren said of the company:
Fiat Chrysler Automobiles (FCA) is a major auto manufacturer with eight global brands (Chrysler, Jeep, Ram, Dodge, Ferrari, Maserati, Fiat and Alfa Romeo), which formed as a result of a multi-stage merger of Fiat and Chrysler beginning in 2009. Despite recent headlines about its intent to promote industry consolidation, we believe FCA should come close to management’s goal of €4 per share of earnings by 2018 as a standalone business. We believe FCA is well positioned to improve its profitability and narrow the margin gap with its peers. Underpinning our thesis is a strong management team led by CEO Sergio Marchionne, who has an impressive twenty-year track record of creating wealth for shareholders. FCA is aggressively shifting its mix from low-margin, mass market brands (Chrysler, Dodge, Fiat) to higher-margin specialty segments (Jeep, Alfa Romeo, Ram, Maserati), a strategy that has brought more focus to the brands and allowed the group to consistently gain market share. In addition, we expect a host of operational issues that have temporarily depressed margins to subside. Meanwhile, shareholder-friendly capital allocation maneuvers, such as the upcoming spin-off of Ferrari and refinancing of legacy Chrysler debt, should help further unlock value.
For more Bill Nygren (Trades, Portfolio) stocks, see Oakmark Fund’s portfolio here. Not a Premium Member of GuruFocus? Try it free for 7 days here.
