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James Li
James Li
Articles (1359)  | Author's Website |

Bill Nygren Buys 3, Sells Apple and Intel in the 2nd Quarter

Oakmark Fund's sells outweigh buys

Bill Nygren (Trades, Portfolio), manager of the Oakmark Fund, disclosed this week that his top trades for the second quarter included new stakes in Reinsurance Group of America Inc. (NYSE:RGA), General Dynamics Corp. (NYSE:GD) and T-Mobile US Inc. (NASDAQ:TMUS). Despite this, the fund leader also shuttered its holdings in several companies, including Apple Inc. (NASDAQ:AAPL) and Intel Corp. (NASDAQ:INTC), two of the most-voted stocks in the GuruFocus "Buying" basket.

Nygren and his partners invest in companies that they believe trade at a substantial discount to the true value of the business. Over time, the fund managers believe the stock price will rise to the value of the underlying company. Other key considerations include strong free cash flows and high level of ownership; further, the managers look at each purchase as buying a piece of the business and not just a stock certificate.

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The fund manager said in his letter that the Oakmark Fund gained 23% during the quarter, outperforming the Standard & Poor's 500 Index's return of 21%. As of the quarter's end, the fund's $9.58 billion equity portfolio contains 53 stocks with a turnover ratio of 6%.

Fund sells Apple and Intel at solid gains

Oakmark sold 1.276 million shares of Apple and 2.389 million shares of Intel, reducing the equity portfolio 0.85% and 1.35%. Nygren and his partners said the fund sold the shares as the company's stock prices approached Oakmark's estimate of intrinsic value. Both companies "handily" outperformed the S&P 500 over the companies' presence in the fund, with the Cupertino, California-based tech giant increasing 30-fold since Oakmark's first purchase in 2009.

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Intel and Apple remain some of the most-voted stocks among GuruFocus users, with 45 users buying shares in the Santa Clara, California-based semiconductor giant and 17 users buying shares in Apple according to the Warren Buffett (Trades, Portfolio)'s Virtual Baskets feature.

Despite its 8% price decline on Thursday, Apple remains significantly overvalued based on its GuruFocus Value Line and valuation rank of 1 on the back of price-book and price-sales ratios that are close to 10-year highs and underperform over 90% of global competitors.

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Buffett's Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) remains a heavy shareholder of Apple with 980,622,264 shares. The Omaha, Nebraska-based insurance conglomerate dedicated over 44% of its equity portfolio to the stake.

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Reinsurance Group of America

The Oakmark Fund purchased 2.118 million shares of Reinsurance Group of America, giving the position 1.52% equity portfolio weight. Shares averaged $92.43 during the second quarter.

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GuruFocus ranks the Chesterfield, Missouri-based insurance company's financial strength 5 out of 10: Although the company has a solid Piotroski F-score of 6, insurance coverage and debt ratios are underperforming over 70% of global competitors.

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Nygren said in his letter that based on scenario analysis and management talks, Reinsurance Group's share price has "collapsed" to levels that in their view represented a "worse-case" scenario. GuruFocus ranks the company's valuation 9 out of 10 on the back of price-book, price-to-tangible book and price-to-free cash flow ratios outperforming over 87% of global competitors, suggesting possible undervaluation.

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General Dynamics

Nygren and his partners purchased 800,000 shares of General Dynamics, giving the holding 1.09% equity portfolio weight.

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GuruFocus ranks the Reston, Virginia-based aerospace and defense company's profitability 7 out of 10 on the heels of profit margins outperforming over 70% of global competitors.

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T-Mobile US

The fund managers purchased 1 million shares of T-Mobile, giving the stake 0.95% weight in the equity portfolio. Shares averaged $95.53 during the second quarter.

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Nygren said in his shareholder letter that Oakmark initiated the position following the Bellevue, Washington-based company's approved merger with Sprint.

Fund's other top sells

Oakmark's other top sells include the elimination of its stake in Fiat Chrysler Automobiles NV (NYSE:FCAU), Texas Instruments Inc. (NASDAQ:TXN) and FedEx Corp. (NYSE:FDX). The three sells reduced the equity portfolio 1.51%, 1.34% and 0.79%.

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Disclosure: Author is long Apple and Intel. The mention of holdings in this article reflect information as of June and do not include any transactions made during July and August. Berkshire's holding in Apple reflects the company's 4-for-1 stock split, which occurred on Aug. 31.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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