Bill Nygren (Trades, Portfolio), portfolio manager of the Oakmark Funds, invests in companies that trade at substantial discounts to their business value. As discussed in the fund’s prospectus, the Oakmark Select Fund seeks long-term capital appreciation based on the assumption that the company’s stock price converges to the intrinsic value over time. Nygren and his partners view each stock buy as “a piece of the business” instead of simply a stock certificate.
The Oakmark Select Fund portfolio manager eliminated positions in LinkedIn Corp. (LNKD, Financial), Monsanto Co. (MON, Financial) and Fiat Chrysler Automobiles NV (FCAU, Financial) during the third quarter. With the proceeds from these transactions, Nygren invested in 6.5 million shares of MGM Resorts International (MGM, Financial).
Nygren sold his 1.3 million share stake of LinkedIn at an average price of $191.68 per share. With this transaction, the fund manager pared his portfolio 1.7% and realized a net gain of about 38.32%.
LinkedIn, a well-known professional networking website, reported strong third-quarter earnings as discussed in a previous article. The company increased its member page views 27% during the quarter, yielding a 20% year-over-year growth in unique member page views. Diluted earnings per share based on generally accepted accounting principles increased 42 cents from third-quarter 2015 to six cents.
On June 11, Microsoft Corp. (MSFT, Financial) announced a $26.2 billion merger agreement to acquire LinkedIn for $196 per share. The companies definitively agreed to the all-cash transaction two days later when LinkedIn CEO Jeff Weiner and Chairman Reid Hoffman supported the transaction and both boards unanimously approved the merger. The companies expect to close the merger by the end of 2016.
As of Dec. 2, the merger received approvals from several global clearances from the U.S., Canada, Brazil and South Africa. Three days later, the European Commission at Brussels cleared the merger, allowing the merger to close in the coming days.
In his commentary letter, Nygren listed the fund’s largest contributors: LinkedIn, Apache Corp. (APA, Financial) and Alphabet Inc. (GOOG, Financial) (GOOGL, Financial) returned 66%, 67% and 28% respectively. Although LinkedIn likely has good growth potential based on its earnings report, Nygren eliminated his LinkedIn position, likely due to the pending merger with Microsoft.
Monsanto Co.
Nygren sold his remaining 1.67 million shares of Monsanto at an average price of $104.91. The fund manager trimmed his portfolio 1.2% with this transaction.
The agricultural inputs company has a 0.19 cash-to-debt ratio and interest coverage slightly above Ben Graham’s required threshold of 5. Despite this, the company has strong Altman Z-scores and Beneish M-scores. As these factors essentially offset each other, the company’s financial strength ranks 5 out of 10.
Monsanto reported $2.99 in as-reported EPS for fiscal year 2016 and expects fiscal year 2017 as-reported EPS to range between $3.83 and $4.35, likely due to increased demand for two soybean products. However, despite the good earnings outlook, the company still has several warning signs: including declining operating margins and per-share revenue, increased long-term debt and high dividend payout ratios.
Fiat Chrysler Automobiles
Nygren sold 24.4 million shares of Fiat Chrysler Automobiles (FCA) at an average price of $6.59 per share. The fund manager realized a net loss of 28% with this transaction.
The company’s stock price has decreased since Nygren took a position in FCA during second-quarter 2015. Although the company reported strong third-quarter results, which include a 29% increase in adjusted EBITDA and a 1.3% increase in group adjusted EBIT margin, the company still has declining profit margins.
MGM
Nygren made one new stock buy during the third quarter, MGM. As discussed in his commentary letter, the Oakmark Select Fund established a position in the casino operator due to undervaluation of the company’s recovery potential in Las Vegas and the profit improvement plan. Additionally, Nygren claims that MGM’s management has diligently tried to “monetize latent real estate value and improve the balance sheet.”
Jim Murren, chairman and CEO of MGM, reflected on the company’s strong third-quarter, which included diluted EPS of 93 cents and net incomes of $536 million. The former increased 81 cents from third-quarter 2015 while the latter expanded 706%. The chairman also praised the company’s efforts to execute good opportunities, strengthen the organization, improve the balance sheet and position the company for high growth. The latter two align with Oakmark Fund’s investing thesis.
See also
GuruFocus provides two types of guru picks: latest guru picks and real-time picks. Generally, investors must report their quarterly portfolio to the Securities and Exchange Commission within 45 days after the end of the quarter in a Form 13F filing. However, if an investor makes a trade in a company where he owns more than 5% of the total shares outstanding, the SEC requires him to file a Schedule 13D within 10 business days after the transaction takes place. Such guru picks are known as real-time picks, one of several features that we offer to premium members. Additionally, the premium membership gives access to all value screeners, including the All-in-One Guru Screener that offers over 150 filters.
The premium plus membership gives further access, including backtesting for up to 10 years, the Manual of Stocks for all U.S. companies, and over 4000 institutional 13F and 13D filings. Please refer to the membership levels page for all member benefits. If you are not a member, we invite you to a free seven-day trial.
Disclosure: I do not own stock in any of the companies mentioned.
