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5 Financial Services Stocks Bill Nygren Likes

These companies are among his top holdings

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Sydnee Gatewood
Sep 24, 2021

Summary

  • Guru has long-term positions in these stocks.
  • All of them are among his top 10 holdings.
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When searching for value investment opportunities, Oakmark Fund manager

Bill Nygren (Trades, Portfolio) takes the approach of a business owner, seeing each position as owning a piece of the business as opposed to just a stock certificate.

To achieve long-term capital appreciation, the renowned guru, who also manages the Chicago-based firm’s Select and Global Select funds, usually invests in mid- and large-cap companies. When picking stocks, he looks for growing companies that have shareholder-oriented management teams. According to the fund’s fact sheet, he prefers to take a position when the stock is trading at a substantial discount to his estimate of intrinsic value, then waits for the gap between the two to close before selling.

As of the end of the first quarter, the financial services sector had the largest representation in Nygren’s $16.38 billion equity portfolio with a weight of 36.76%.

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According to GuruFocus portfolio data, Nygren’s five biggest financial services holdings as of the end of the three months ended June 30 were Capital One Financial Corp. (

COF, Financial), Ally Financial Inc. (ALLY, Financial), Bank of America Corp. (BAC, Financial), Citigroup Inc. (C, Financial) and Charles Schwab Corp. (SCHW, Financial).

Capital One Financial

In the second quarter, the guru left his stake in Capital One (

COF, Financial) unchanged at 4.16 million shares. The position accounts for 3.93% of the equity portfolio and is his second-largest holding. GuruFocus estimates Nygren has gained 153.49% on the long-held investment.

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The McLean, Virginia-based bank holding company, which specializes in credit services, has a $71.74 billion market cap; its shares were trading around $167.46 on Friday with a price-earnings ratio of 6.68, a price-book ratio of 1.16 and a price-sales ratio of 2.68.

The GF Value Line suggests the stock is significantly overvalued currently based on historical ratios, past performance and future earnings projections.

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GuruFocus rated Capital One’s financial strength 3 out of 10 on the back of debt-related ratios that top over half of other industry players and is above its own historical performance.

The company’s profitability scored a 6 out of 10 rating, driven by margins and returns on equity, assets and capital that outperform a majority of competitors. Capital One also has a high Piotroski F-Score of 8 out of 9, which indicates business conditions are healthy. Despite recording a slowdown in revenue per share growth over the past 12 months, it has a predictability rank of 4.5 out of five stars. According to GuruFocus, companies with this rank return an average of 10.6% annually over a 10-year period.

Of the gurus invested in Capital One, Dodge & Cox has the largest stake with 7.96% of outstanding shares.

Chris Davis (Trades, Portfolio), Richard Pzena (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) also have significant positions in the stock.

Ally Financial

Nygren curbed his Ally Financial (

ALLY, Financial) stake by 4.84% during the quarter to 12.7 million shares, which represent 3.89% of the equity portfolio and is his third-largest holding. According to GuruFocus, he has gained an estimated 150.94% on the investment since the fourth quarter of 2015.

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The bank holding company headquartered in Detroit, which offers traditional banking services along with auto financing and corporate lending, has a market cap of $19.12 billion; its shares were trading around $53.14 on Friday with a price-earnings ratio of 6.98, a price-book ratio of 1.27 and a price-sales ratio of 2.57.

According to the GF Value Line, the stock is significantly overvalued currently.

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Ally’s financial strength was rated 2 out of 10 by GuruFocus even though its cash-to-debt and debt-to-equity ratios topped over half of fellow industry players and was outperforming versus its own history.

The company’s profitability fared a bit better with a 4 out of 10 rating. In addition to margins and returns that outperform over half its industry peers, Ally has a high Piotroski F-Score of 9 and a one-star predictability rank. GuruFocus says companies with this rank return an average of 1.1% annually.

With a 3.54% stake, Nygren is the company’s largest guru shareholder. Other notable investors include

Howard Marks (Trades, Portfolio), Pioneer Investments, George Soros (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Steven Cohen (Trades, Portfolio).

Bank of America

The investor trimmed his stake in Bank of America (

BAC, Financial) by 11.74% to 12.3 million shares during the second quarter, which account for 3.1% of the equity portfolio and is his sixth-largest position. GuruFocus data shows Nygren has gained an estimated 149.95% on the investment over its long lifetime.

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The Charlotte, North Caroline-based bank has a $355.53 billion market cap; its shares were trading around on $42.28 on Friday with a price-earnings ratio of 14.14, a price-book ratio of 1.4 and a price-sales ratio of 4.29.

Based on the GF Value Line, the stock appears to be modestly overvalued currently.

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GuruFocus rated Bank of America’s financial strength 3 out of 10. Despite issuing approximately $16.7 billion in new long-term debt over the past three years, it is still at a manageable level.

The bank’s profitability scored a 5 out of 10 rating on the back of margins and returns that outperform over half of its competitors. Bank of America also has a moderate Pitroski F-Score of 5, which indicates operations are typical for a stable company. Despite recording a slowdown in revenue per share growth, it has a one-star predictability rank.

Warren Buffett (Trades, Portfolio) has the largest stake with 12% of Bank of America’s outstanding shares. Dodge & Cox, PRIMECAP Management (Trades, Portfolio), Pioneer Investments, Diamond Hill Capital (Trades, Portfolio), Li Lu (Trades, Portfolio), Hotchkis & Wiley, Pzena, Andreas Halvorsen (Trades, Portfolio) and several other gurus also own shares of the bank.

Citigroup

Nygren boosted his position in Citigroup (

C, Financial) slightly in the most recent quarter. Representing 2.98% of the equity portfolio, he now owns 6.9 million shares. It is his seventh-largest holding. GuruFocus says he has gained an estimated 28.66% on the investment since establishing it in the first quarter of 2014.

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Headquartered in New York, the investment bank has a market cap of $144.26 billion; its shares were trading around $71.16 on Friday with a price-earnings ratio of 7.14, a price-book ratio of 0.79 and a price-sales ratio of 2.07.

The GF Value Line suggests the stock is fairly valued currently.

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Citigroup’s financial strength was rated 3 out of 10 by GuruFocus. Although the company has issued approximately $11.9 billion in new long-term debt over the past three years, it is at a manageable level.

The company’s profitability scored a 5 out of 10 rating on the back of margins and returns that outperform over half of its industry peers. Citigroup also has a high Piotroski F-Score of 8 and a one-star predictability rank.

Of the gurus invested in Citigroup,

ValueAct Holdings LP (Trades, Portfolio) has the largest stake with 1.02% of outstanding shares. Hotchkis & Wiley, Pzena, First Pacific Advisors (Trades, Portfolio), Pioneer Investments, PRIMECAP Management (Trades, Portfolio), Steven Romick (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss and Charles Brandes (Trades, Portfolio) also own the stock.

Charles Schwab

The guru left his Charles Schwab (

SCHW, Financial) holding unchanged at 6.6 million shares. The stock represents 2.93% of the equity portfolio and is his eighth-largest holding. GuruFocus data shows Nygren has gained an estimated 40.59% on the investment since the third quarter of 2018.

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The Westlake, Texas-based brokerage company, which also provides banking, electronic trading and advisory services, has a $142.82 billion market cap; its shares were trading around $75.74 on Friday with a price-earnings ratio of 31.92, a price-book ratio of 3 and a price-sales ratio of 8.38.

According to the GF Value Line, the stock is significantly overvalued currently.

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GuruFocus rated Charles Schwab’s financial strength 3 out of 10. Although the company has issued new long-term debt over the past several years, it is at a manageable level.

The company’s profitability fared a bit better, scoring a 6 out of 10 rating on the back of margins and returns that outperform over half of its competitors as well as a Piotroski F-Score of 5. Despite recording a slowdown in revenue per share growth, Charles Schwab has a 4-star predictability rank. GuruFocus data shows companies with this rank return an average of 9.8% annually.

With a 3.98% stake, Dodge & Cox is Charles Schwab’s largest guru shareholder.

PRIMECAP Management (Trades, Portfolio), Al Gore (Trades, Portfolio), Pioner Investments, Ruane Cunniff (Trades, Portfolio), Ron Baron (Trades, Portfolio), Diamond Hill, First Eagle, Yacktman Asset Management (Trades, Portfolio), the Parnassus Endeavor Fund (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Wallace Weitz (Trades, Portfolio), Mairs and Power (Trades, Portfolio) and Tom Gayner (Trades, Portfolio) also have significant positions in the stock.

Additional holdings in the financial services space

Other stocks Nygren owns in the financial services sector as of the end of the second quarter include Goldman Sachs Group Inc. (

GS, Financial), American International Group Inc. (AIG, Financial), American Express Co. (AXP, Financial), State Street Corp. (STT, Financial) and Wells Fargo & Co. (WFC, Financial).

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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