Charles de Vaulx (Trades, Portfolio) (Trades, Portfolio), portfolio manager of the International Valuations Advisors (IVA) Fund, invested in two major stocks May 31: Bank of America Corp. (BAC, Financial) and Hyundai Motor Co. (XKRX: 005380).
The manager of Sofire Fund Ltd., which won “Fund of the Year” in the global equity category in 2005 and in 2006, Charles de Vaulx (Trades, Portfolio), joined the IVA Fund in May 2008 as portfolio manager and chief information officer. According to his May 27, semiannual report, de Vaulx chooses stocks to buy using a “preservation of capital” approach: the manager targets company stocks that trade at “reasonable discounts” to the company’s intrinsic value at the time of investment. Additionally, de Vaulx prefers companies that have good balance sheets so the fund does not suffer in case the valuations are inaccurate.
The global banks industry presents a twofold view to the portfolio manager of IVA Funds. Although many Chinese banks are trading at low P/B ratios, de Vaulx chose not to invest in them, citing beliefs of “credit overextension” in China. European banks, according to de Vaulx, are not well capitalized and are likely riskier than U.S. banks like Bank of America.
Incorporated in Delaware July 31, 1998, Bank of America provides customers with banking and other financial services. Compared to its competitors in the global banking industry, Bank of America has a relatively high financial strength and low profitability. Although it has low ROE and ROA, Bank of America has a lower P/B ratio than its competition, suggesting that it is undervalued compared to competing firms. With a three-year EPS growth of 255, Bank of America has a higher three-year EPS growth than 99% of firms in the global banking industry.
Despite having a slightly higher trailing-12-month P/E ratio than JPMorgan Chase & Co. (JPM, Financial), Bank of America has a P/E ratio in the bottom 19% of global banking companies. The Peter Lynch chart suggests that Bank of America’s stock price is undervalued based on its earnings line.
The top 10 holdings of both IVA funds, Worldwide and International, include Hyundai Motor Co., a South Korean motor manufacturing and financing company incorporated Dec. 29, 1967. In his May letter, de Vaulx explains why he invests mostly in “well-capitalized and well-managed” stocks. The IVA Fund manager especially prefers two South Korean stocks, including Hyundai, because they still offer large discounts despite questionable corporate governance, according to the letter.
With a financial strength of 7, Hyundai has a healthy financial outlook. Although it has a declining gross margin, the South Korean motor company has an operating margin that is expanding and higher than 65% of companies in the global automobile manufacturers industry. Among competing firms in its sector, Hyundai has the lowest valuation ratios, which are currently near five-year lows. The firm also has a dividend yield higher than 92% of global auto manufacturers industry.
View Charles de Vaulx (Trades, Portfolio)’s other top 10 holdings here.
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