Causeway Capital Management, the Los Angeles-based firm founded by Sarah Ketterer (Trades, Portfolio) and Harry Hartford in 2001, seeks to achieve superior risk-adjusted returns by investing in mispriced equities in both developed as well as emerging markets.
The guru and her team look for potential opportunities among mid- and large-cap companies using quantitative and value-oriented methods. Each stock also receives a risk score based on the additional volatility or risk it adds to the portfolio. The investment team then enters positions in the stocks with the highest expected risk-adjusted return that also have a lower price-earnings ratio and higher dividend yield than the market.
As of the second quarter, the communication services sector had the largest representation in Ketterer's $5.55 billion equity portfolio with 19.43% weight.
According to GuruFocus portfolio data, Ketterer's five largest communication services holdings as of June 30 were Baidu Corp. (BIDU, Financial), ViacomCBS Inc. (VIAC, Financial), NetEase Inc. (NTES, Financial), The Walt Disney Co. (DIS, Financial) and Mobile TeleSystems PJSC (MBT, Financial).
Baidu
In the second quarter, Ketterer trimmed her stake in Baidu by 9.27% to 6.08 million shares. The position accounts for 13.13% of the equity portfolio and is the largest holding overall. GuruFocus estimates she has lost 27.8% on the investment since the second quarter of 2016.
The Chinese search engine has a $42.43 billion market cap; its shares were trading around $123.51 on Friday with a price-earnings ratio of 83.28, a price-book ratio of 1.93 and a price-sales ratio of 2.85.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Baidu's financial strength 6 out of 10 despite having weak interest coverage and an Altman Z-Score of 2.19, which indicates it is under some pressure since assets are building up at a faster rate than revenue is growing.
The company's profitability scored an 8 out of 10 rating. In addition to declining margins, the company's returns also underperform around half of its competitors. It also has a moderate Piotroski F-Score of 6, which indicates operations are stable, and the predictability rank of one out of five stars is on watch as a result of declining revenue per share over the past 12 months. According to GuruFocus, companies with this rank return, on average, 1.1% annually over a 10-year period.
Of the gurus invested in Baidu, Jim Simons (Trades, Portfolio)' Renaissance Technologies has the largest stake with 2.8% of outstanding shares. Other top shareholders include PRIMECAP Management (Trades, Portfolio), Dodge & Cox, John Rogers (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio), David Herro (Trades, Portfolio), Steven Romick (Trades, Portfolio), Tweedy Browne (Trades, Portfolio) and Mason Hawkins (Trades, Portfolio).
ViacomCBS
The investor curbed her ViacomCBS stake by 39.46% during the second quarter to 2.93 million shares. The holding accounts for 1.23% of the equity portfolio. GuruFocus data shows Ketterer has lost approximately 32.53% on the investment since establishing it in the fourth quarter of 2019.
The New York-based mass media conglomerate, which has interests primarily in film and television, has a market cap of $18.78 billion; its shares were trading around $30.25 on Friday with a price-earnings ratio of 7.49, a price-book ratio of 1.33 and a price-sales ratio of 0.53.
According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rank of 9 out of 10 supports this assessment.
Weighed down by inadequate interest coverage, ViacomCBS's financial strength was rated 4 out of 10 by GuruFocus. The company's Altman Z-Score of 1.59 also warns the company could be in danger of going bankrupt. The return on invested capital, however, eclipses the weighted average cost of capital, implying it is able to make a profit on its projects.
The company's profitability scored an 8 out of 10 rating despite having a declining operating margin. It also has strong returns that outperform a majority of industry peers, but the low Piotroski F-Score of 3 suggests business conditions are in poor shape. Due to a decline in revenue per share and earnings over the past year, the 3.5-star predictability rank is on watch. GuruFocus says companies with this rank typically return 9.3% per year.
With a 3.06% stake, Seth Klarman (Trades, Portfolio) is ViacomCBS's largest guru shareholder. Other top guru investors include Rogers, Larry Robbins (Trades, Portfolio), Hotchkis & Wiley, Pioneer Investments (Trades, Portfolio), John Paulson (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Robert Olstein (Trades, Portfolio), NWQ Managers (Trades, Portfolio) and Jeff Auxier (Trades, Portfolio).
NetEase
The guru reduced her NetEase position by 1.64% during the second quarter, bringing the total holding to 155,900 shares. The position accounts for 1.21% of the equity portfolio. According to GuruFocus, Ketterer has gained an estimated 73.01% on the investment since the fourth quarter of 2014.
The Chinese internet technology company has a $59.63 billion market cap; its shares were trading around $465.31 on Friday with a price-earnings ratio of 18.08, a price-book ratio of 6 and a price-sales ratio of 6.56.
Based on the Peter Lynch chart and valuation rank of 3 out of 10, the stock appears to be overvalued.
GuruFocus rated NetEase's financial strength 7 out of 10. Although the company has issued approximately 2.3 billion yuan ($339.7 million) in new long-term debt over the past three years, it is still at a manageable level due to sufficient interest coverage. It also has a robust Altman Z-Score of 6.13, which implies it is in good standing. The ROIC also significantly surpasses the WACC, indicating good profitability.
The company's profitability scored a 10 out of 10 rating. Even though margins are in decline, its returns outperform a majority of competitors. It also has a moderate Piotroski F-Score of 6. Despite a slowdown in revenue per share growth over the past year, NetEase has a five-star predictability rank. GuruFocus data shows companies with this rank return, on average, 12.1% annually.
Simons' firm has the largest stake in NetEase with 0.91% of outstanding shares. Other top guru shareholders include Ken Fisher (Trades, Portfolio), Pioneer, Jeremy Grantham (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Prem Watsa (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio).
Walt Disney
Ketterer boosted her Disney holding by 7.58% in the second quarter. Now holding 462,748 shares, the position has 0.93% weight in the equity portfolio. GuruFocus estimates she has gained 25.79% on the investment since the first quarter.
The entertainment and media giant, which is headquartered in Burbank, California, has a market cap of $235.28 billion; its shares were trading around $130.11 on Friday with a price-book ratio of 2.7 and a price-sales ratio of 3.38.
The Peter Lynch chart and the valuation rank of 2 out of 10 suggest the stock is overvalued.
Disney's financial strength was rated 5 out of 10 by GuruFocus. In addition to having issued approximately $19.7 billion in new long-term debt over the past three years, the company's assets are building up faster than its revenue is growing. The Altman Z-Score of 1.89 is also indicative of the company being under some pressure.
Despite having declining margins and negative returns that underperform industry peers, the company's profitability scored an 8 out of 10 rating. The 4.5-star predictability rank is also on watch as a result of declining revenue per share over the past year. GuruFocus says companies with this rank return an average of 10.6% annually.
Philippe Laffont (Trades, Portfolio) is the company's largest guru shareholder with 0.51% of outstanding shares. Fisher, Daniel Loeb (Trades, Portfolio), PRIMECAP, Pioneer, Diamond Hill Capital (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Mairs and Power (Trades, Portfolio) and David Tepper (Trades, Portfolio) also have large positions in the stock.
Mobile TeleSystems
The investor trimmed her Mobile TeleSystems position by 11.07% in the second quarter. The 4.8 million-share stake represents 0.81% of the equity portfolio. GuruFocus data shows she has lost an estimated 11.16% on the investment since establishing it in the fourth quarter of 2014.
The Russian telecom company has an $8.01 billion market cap; its shares were trading around $9.03 on Friday with a price-earnings ratio of 11.12, a price-book ratio of 21.84 and a price-sales ratio of 1.26.
According to the Peter Lynch chart, the stock is undervalued.
Mobile TeleSystems' financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately 85.8 billion rubles ($1.13 billion) in new long-term debt over the past several years, the company has poor interest coverage. Its Altman Z-Score of 1.28 also warns the company could be in danger of bankruptcy due to its assets building up faster than revenue is growing. The ROIC is also being surpassed by the WACC.
The company's profitability scored a 9 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 7, which suggests business conditions are healthy. Mobile TeleSystems' consistent earnings and revenue growth also contributes to a 4.5-star predictability rank, which is on watch.
With a 3.31% stake, Simons' firm is the company's largest guru shareholder. Pioneer, Grantham and Charles Brandes (Trades, Portfolio) also own the stock.
Disclosure: No positions.
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