While there are still a couple months left in 2021, some of Sarah Ketterer (Trades, Portfolio)’s holdings are potential buying opportunities currently.
With the market continuing to attempt to recover from the Covid-19 pandemic amid new strains like the Delta variant, as well as concerns surrounding interest rates and inflation impacting the economy, two stocks in Causeway Capital Management’s equity portfolio have dived.
The S&P 500 Index, however, has gained around 23.85% year to date and has more than doubled from the low reached when the full effects of the pandemic hit on March 23, 2020.
The Los Angeles-based firm, which was founded by Ketterer 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.
Ketterer’s equity portfolio consisted of 78 stocks as of the three months ended June 30, which was valued at $4.9 billion. Her holdings have had mixed performances this year, with nine of the top 20 positions declining.
As of Tuesday, the two stocks that have collapsed to near their lowest prices in a year were Takeda Pharmaceutical Co. Ltd. (TAK, Financial) and Unilever PLC (UL, Financial).
Takeda Pharmaceutical
Shares of Takeda Pharmaceutical (TAK, Financial) tumbled 16.36% over the past year. After posting a small gain on Monday to close at $14.03, shares edged 2.19% lower on Tuesday morning. The stock is currently 0.17% above its annual low of $13.86.
Ketterer owns 2.03 million shares of the company, reflecting 0.7% of her equity portfolio.
The Japanese pharmaceutical company has a $43.72 billion market cap; its shares were trading around $13.87 on Tuesday with a price-earnings ratio of 11.5, a price-book ratio of 0.95 and a price-sales ratio of 1.48.
The GF Value Line suggests the stock is modestly undervalued currently based on its historical ratios, past performance and future earnings projections.
GuruFocus rated Takeda’s financial strength 4 out of 10. In addition to weak interest coverage, the Altman Z-Score of 1.07 warns the company is in distress and could be at risk of going bankrupt.
The company’s profitability fared slightly better with a 6 out of 10 rating, driven by an expanding operating margin and strong returns on equity, assets and capital that outperform a majority of competitors. Takeda also has a high Piotroski F-Score of 7 out of 9, meaning business conditions are healthy. Although revenue per share had declined over the past several years, the company still has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Takeda, Catherine Wood (Trades, Portfolio) has the largest stake with 0.49% of its outstanding shares. Larry Robbins (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Charles Brandes (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) also have significant positions in the stock.
Unilever
Unilever’s (UL, Financial) shares have fallen 11.3% over the past year. After seeing a gain on Monday to close at $53.51, shares were up 0.73% on Tuesday morning. The stock is currently 3.79% above its yearly low of $51.98.
The investor owns 406,635 shares of the company, which represent 0.49% of her equity portfolio.
The British consumer goods company has a market cap of $138.84 billion; its shares were trading around $53.90 on Tuesday with a price-earnings ratio of 21.6, a price-book ratio of 7.03 and a price-sales ratio of 2.31.
According to the GF Value Line, the stock is modestly undervalued currently.
Unilever’s financial strength was rated 6 out of 10 by GuruFocus. Although the company has issued new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 2.89, however, indicates it is under some pressure since 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 by a wide margin, indicating value is being created as the company grows.
The company’s profitability fared a bit better, scoring a 7 out of 10 rating on the back of operating margin expansion and returns that outperform a majority of industry peers. Unilever also has a high Piotroski F-Score of 7, while a slowdown in revenue per share growth over the 12 months has resulted in the two-star predictability rank being on watch. GuruFocus says companies with this rank return, on average, 6% annually.
With a 0.37% stake, Tom Russo (Trades, Portfolio) is Unilever’s largest guru shareholder. Other top guru investors include Hotchkis & Wiley, Ken Fisher (Trades, Portfolio), Simons’ firm, Tweedy Browne (Trades, Portfolio) and Yacktman Asset Management (Trades, Portfolio).
