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 end of the first quarter, the technology sector had the largest representation in Ketterer’s $5.08 billion equity portfolio with a weight of 27.56%.
According to GuruFocus portfolio data, Ketterer’s five largest tech holdings as of the end of the three months ended March 31 were Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial), Infosys Ltd. (INFY, Financial), Sabre Corp. (SABR, Financial), Concentrix Corp. (CNXC, Financial) and Broadcom Inc. (AVGO, Financial).
Taiwan Semiconductor Manufacturing
In the first quarter, Ketterer curbed her stake in Taiwan Semiconductor Manufacturing (TSM, Financial) by 6.37% to 4.7 million shares. The position accounts for 11.03% of the equity portfolio and is the largest holding overall. GuruFocus estimates she has gained 163.66% on the investment since establishing it in the third quarter of 2012.
The Taiwanese company, which manufactures semiconductor chips, has a $656.84 billion market cap; its shares were trading around $121.09 on Tuesday with a price-earnings ratio of 29.22, a price-book ratio of 8.04 and a price-sales ratio of 11.21.
The GF Value Line suggests the stock is significantly overvalued currently based on historical ratios, past performance and future earnings projections.
GuruFocus rated Taiwan Semiconductor’s financial strength 7 out of 10. Although the company has issued approximately 261 billion New Taiwan dollars ($9.43 billion) in new long-term debt over the past three years, it is still manageable due to a comfortable level of interest coverage. The robust Altman Z-Score of 11.74 also indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The return on invested capital also eclipses the weighted average cost of capital, indicating value is being created as the company grows.
The company’s profitability scored a 9 out of 10 rating, driven by an expanding operating margin and strong returns on equity, assets and capital that outperform a majority of competitors. Taiwan Semiconductor also has a high Piotroski F-Score of 8, which indicates business conditions are healthy, and a profitability rank of 3.5 out of five stars as a result of consistent earnings and revenue growth. According to GuruFocus, companies with this rank return an average of 9.3% annually over a 10-year period.
Of the gurus invested in Taiwan Semiconductor, Ken Fisher (Trades, Portfolio) has the largest stake with 0.51% of outstanding shares. First Eagle Investment (Trades, Portfolio), Frank Sands (Trades, Portfolio), Baillie Gifford (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Spiros Segalas (Trades, Portfolio), Ron Baron (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies also have significant positions in the stock.
Infosys
The guru trimmed her stake in Infosys (INFY, Financial) by 0.19% during the quarter to 6.5 million shares, which represent 2.41% of the equity portfolio and is her ninth-largest holding. According to GuruFocus, Ketterer has gained an estimated 30.62% on the investment since the third quarter of 2012.
The Indian information technology company, which provides business consulting, IT and outsourcing services, has a market cap of $84.38 billion; its shares were trading around $20.36 on Tuesday with a price-earnings ratio of 32.33, a price-book ratio of 8.11 and a price-sales ratio of 6.13.
According to the GF Value Line, the stock is significantly overvalued currently.
Infosys’ financial strength was rated 8 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the company has a robust Altman Z-Score of 13.86. The ROIC also surpasses the WACC, indicating good value creation.
The company’s profitability fared even better, scoring a 10 out of 10 rating. Although the operating margin is in decline, Infosys has strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 7. The company also has a five-star predictability rank even though revenue per share growth has slowed over the past year. GuruFocus says companies with this rank return an average of 12.1% annually.
With a 0.42% stake, Fisher is Infosys’ largest guru shareholder. Other top guru investors are Pioneer Investments (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Baillie Gifford (Trades, Portfolio), John Hussman (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and Yacktman Asset Management (Trades, Portfolio).
Sabre
The investor increased her stake in Sabre (SABR, Financial) by 1.91% during the quarter. She now holds 7.8 million shares, which account for 2.27% of the equity portfolio. GuruFocus data shows she has lost an estimated 44.82% on the investment since the second quarter of 2017.
The Southlake, Texas-based software company, which provides airline and other travel booking services, has a $4.41 billion market cap; its shares were trading around $13.80 on Tuesday with a price-book ratio of 181.59 and a price-sales ratio of 4.21.
Based on the GF Value Line, the stock appears to be significantly overvalued currently.
GuruFocus rated Sabre’s financial strength 2 out of 10. In addition to low debt ratios, the weak Altman Z-Score of -0.32 warns the company could be in danger of bankruptcy if it does not improve its liquidity.
The company’s profitability fared a bit better with a 5 out of 10 rating on the back of declining margins and returns that underperform a majority of competitors. It also has a low Piotroski F-Score of 2, indicating operations are in poor shape. As a result of revenue per share declining over the past five years, the one-star predictability rank is on watch. GuruFocus data shows companies with this rank return, on average, 1.1% annually.
Ketterer is the company’s largest guru shareholder with a 2.44% stake. Larry Robbins (Trades, Portfolio), Caxton, Lee Ainslie (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) also own the stock.
Concentrix
Ketterer reduced her position in Concentrix (CNXC, Financial) by 6.07% in the most recent quarter. Representing 2.14% of the equity portfolio, she now owns 727,717 shares. GuruFocus says she has gained an estimated 52.36% on the investment since the fourth quarter of 2020.
The business services company, which is headquartered in Fremont, California, has a market cap of $7.9 billion; its shares were trading around $150.56 on Tuesday with a price-earnings ratio of 38.37, a price-book ratio of 3.24 and a price-sales ratio of 2.03.
Since its initial public offering in November, the stock has climbed nearly 90%.
Concentrix’s financial strength was rated 5 out of 10 by GuruFocus. Despite having adequate interest coverage, the Altman Z-Score of 2.86 indicates the company is under some pressure. The ROIC has also fallen below the WACC, indicating struggles with creating value.
The company’s profitability scored a 3 out of 10 rating. Its margins and returns outperform over half of industry peers.
Of the gurus invested in Concentrix, Ketterer is the largest guru shareholder with a 1.4% stake. Other major guru shareholders are David Einhorn (Trades, Portfolio), Tweedy Browne (Trades, Portfolio), Steven Scruggs (Trades, Portfolio), Chuck Royce (Trades, Portfolio), the FPA Capital Fund (Trades, Portfolio), Scott Black (Trades, Portfolio), Grantham and Pioneer.
Broadcom
The guru increased her holding of Broadcom (AVGO, Financial) by 32.83% to 230,871 shares. The stock represents 2.11% of the equity portfolio. GuruFocus data shows Ketterer has gained an estimated 25.52% on the investment since the first quarter of 2020.
The San Jose, California-based company, which develops a range of semiconductor and infrastructure software solutions, has a $192.83 billion market cap; its shares were trading around $470.63 on Tuesday with a price-earnings ratio of 43.82, a price-book ratio of 8.06 and a price-sales ratio of 7.84.
According to the GF Value Line, the stock is significantly overvalued currently.
GuruFocus rated Broadcom’s financial strength 4 out of 10 by GuruFocus on the back of poor interest coverage. The Altman Z-Score of 3.02, however, indicates the company is in good standing despite its assets building up at a faster rate than revenue is growing. The ROIC also eclipses the WACC, indicating good value creation.
The company’s profitability scored a 9 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 7. Broadcom also has consistent earnings and revenue growth, which contributed to a five-star predictability rank.
With a 0.29% stake, Barrow, Hanley, Mewhinney & Strauss is the company’s largest guru shareholder. First Pacific Advisors (Trades, Portfolio), Steven Romick (Trades, Portfolio), Pioneer, Philippe Laffont (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), NWQ Managers (Trades, Portfolio), Ronald Muhlenkamp (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Fisher, Ainslie and Grantham also own Broadcom.
Additional holdings in the tech space
Other tech-related stocks Ketterer owns as of the end of the first quarter include Fiserv Inc. (FISV, Financial), Leidos Holdings Inc. (LDOS, Financial), Genpact Ltd. (G, Financial), Oracle Corp. (ORCL, Financial), SAP SE (SAP, Financial), Wipro Ltd. (WIT, Financial), Daqo New Energy Corp. (DQ) and Celestica Inc. (CLS).
View her entire portfolio here.
