Bill Nygren Top Holdings: Intel, Comcast Corp., Tyco International, Capital One Financial Corp., BristolMyers Squibb Company

Bill Nygren, Portfolio Manager of several Oakmark funds, published his Q2 commentary. It is an interesting piece, and in particular, the fund manager provided the following simple reasoning for a bullish case for S&P 500:

The S&P 500 fell 11% in the quarter, despite the continuing recovery in corporate earnings. The S&P now stands at about 11 times next year’s $93 consensus estimate of net income from operations, and it yields 2.2%. At the Morningstar conference last month, I kept telling skeptical attendees that I was bullish because it is so rare to be able to buy the S&P at three-quarters of its long-term average P/E and with a yield that is more than a five-year government bond. Their responses were always the same, “But what if the pessimists are right, and we enter a long period of no real growth in GDP?”


I don’t for a minute concede that we are condemned to that future, but for kicks let’s run the math. If annual inflation is 1.5% and real growth is zero, then corporate sales and profits probably average that same 1.5% growth rate. In a no-real growth mode, companies won’t need to spend much more than depreciation, which leaves them with an after-dividend free cash flow yield of about 6%. With corporate balance sheets already cash heavy, let’s assume excess cash is simply used to reduce shares outstanding.


Where does that put us in five years? Corporate earnings would be up 8%, common shares outstanding would be down 27%, and EPS would be 47% higher. If the P/E rose to its long-term average of 15 times, the S&P would just about double in five years and would have provided more dividend income over that time than the interest income from a five-year Treasury. That’s not too shabby for an economic backdrop that I believe is much too pessimistic. Of course, things could always get worse, but with stock prices appearing so depressed, the bears need to come up with more imagination than that.

Argue as you may, I found truth are simple.


The Oakmark Fund returned an annual average of 5.81% through June 30, 2010 in the past 10 years and 11.82% since inception on 8/5/1991. The performance of the fund is kind of front heavy.


The fund’s website provided this list of its top 10 positions:

1	Intel	2.31 %
2	Comcast	2.19 %
3	Tyco Electronics	2.14 %
4	Capital One Financial	2.11 %
5	Bristol-Myers Squibb	2.04 %
6	Medtronic	2.02 %
7	Texas Instruments	1.98 %
8	Best Buy	1.94 %
9	Tyco International	1.91 %
10	Bank of New York Mellon	1.90 %

Each of the top 10 positions has a weighting of about 2%. The fund seems to have very strict asset allocation rules: if they like the stock the most, they give it 2.31% of their money; if they like a stock the 10^th best, they give it 1.90%.


Here is a brief review of the first five companies:

Intel Corp. (INTC, Financial)

Intel Corporation, one of the world's largest semiconductor chip maker, supplies the computing and communications industries with chips, boards, and systems building blocks that are integral to computers, servers, and networking and communications products. Intel Corp. has a market cap of $116.9 billion; its shares were traded at around $21.01 with a P/E ratio of 15.6 and P/S ratio of 3.4. The dividend yield of Intel Corp. stocks is 3%. Intel Corp. had an annual average earning growth of 2.5% over the past 10 years.

Comcast Corp.(CMCSA, Financial)

Comcast Corporation is principally involved in the development, management and operation of broadband cable networks, and in the provision of electronic commerce and programming content. Comcast Corp. Special has a market cap of $52.04 billion; its shares were traded at around $18 with a P/E ratio of 14.9 and P/S ratio of 1.4. The dividend yield of Comcast Corp. Special stocks is 2.1%. Comcast Corp. Special had an annual average earning growth of 14.9% over the past 10 years.

TYCO INTERNATIONAL LTD. (TYC, Financial)

Tyco International Ltd., a diversified manufacturing and service company, is the world's largest manufacturer and servicer of electrical and electronic components and undersea telecommunications systems, the world's largest manufacturer, installer, and provider of fire protection systems and electronic security services, has strong leadership positions in disposable medical products, plastics, and adhesives, and is the largest manufacturer of flow control valves. Tyco International Ltd. (switzerland) has a market cap of $17.74 billion; its shares were traded at around $37.31 with a P/E ratio of 15.3 and P/S ratio of 1. The dividend yield of Tyco International Ltd. stocks is 2.1%.

Capital One Financial Corp. (COF, Financial)

Capital One Financial is a holding company whose subsidiaries provide a variety of products and services to consumers using its proprietary information-based strategy. Capital One Financial Corp. has a market cap of $20.54 billion; its shares were traded at around $45 with a P/E ratio of 15.1 and P/S ratio of 1.3. The dividend yield of Capital One Financial Corp. stocks is 0.5%. Capital One Financial Corp. had an annual average earning growth of 0.4% over the past 10 years.

BristolMyers Squibb Company (BMY, Financial)

Bristol-Myers Squibb Company is a global leader in the research and development of innovative lifesaving and life-enhancing treatments for heart disease; high blood pressure; stroke; diabetes; cancer; HIV/AIDS and other infectious diseases; depression, schizophrenia and other mental disorders; pain; and other conditions. Bristolmyers Squibb Company has a market cap of $43.52 billion; its shares were traded at around $25.31 with a P/E ratio of 12 and P/S ratio of 2.3. The dividend yield of Bristolmyers Squibb Company stocks is 5.1%. Bristolmyers Squibb Company had an annual average earning growth of 3.3% over the past 5 years.





To check the complete list of of Bill Nygren, please go to http://www.gurufocus.com/holdings.php?GuruName=Bill+Nygren


Conclusion


Bill Nygren is taking a bullish view towards the stocks. He is very diversified among his top holdings.


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