Causeway Capital Management leader Sarah Ketterer (Trades, Portfolio) released her second-quarter portfolio earlier this week.
Seeking to post superior risk-adjusted returns, the guru’s Los Angeles-based firm, which she founded with Harry Hartford in 2001, invests in mispriced equities in both developed and emerging markets. The investment team looks 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 amount of volatility it adds to the portfolio. The team then enters positions in the stocks with the highest expected risk-adjusted returns that also have a lower price-earnings ratio and higher dividend yield than the market.
With these criteria in mind, Ketterer’s firm entered 10 new positions during the quarter, sold out of seven stocks and trimmed or added to a number of other existing holdings. The most significant trades included a new position in General Electric Co. (GE, Financial), increased bets on Ryanair Holdings PLC (RYAAY, Financial) and Credicorp Ltd. (BAP, Financial) and the divestment of Hill-Rom Holdings Inc. (HRC, Financial) and Alexandria Real Estate Equities Inc. (ARE, Financial).
General Electric
After selling out of General Electric (GE, Financial) in the first quarter, Ketterer invested in a new 1 million-share stake, allocating it to 2.32% of the equity portfolio. The stock traded for an average price of $103.28 per share during the quarter.
It is now her 10th-largest holding.
The Boston-based industrial conglomerate, which recently announced it will be splitting into three separate companies, has a $109.96 billion market cap; its shares were trading around $100.09 on Thursday with a price-book ratio of 2.93 and a price-sales ratio of 1.4.
The GF Value Line suggests the stock is significantly overvalued currently based on its historical ratios, past performance and future earnings projections.
GuruFocus rated General Electric’s financial strength 4 out of 10 on the back of low debt-related ratios and an Altman Z-Score of 1.43 that warns it could be at risk of going bankrupt. The return on invested capital is also being overshadowed by the weighted average cost of capital, meaning the company is struggling to create value as it grows.
The company’s profitability scored a 5 out of 10 rating as its margins and returns on equity, assets and capital are underperforming a majority of competitors. GE is supported, however, by a moderate Piotroski F-Score of 4, which means operations are typical for a stable company. As a result of revenue per share declining in recent years, however, the predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank return an average of 1.1% annually.
Of the gurus invested in GE, Bill Nygren (Trades, Portfolio) has the largest stake with 2.19% of its outstanding shares. Andreas Halvorsen (Trades, Portfolio), Pioneer Investments, Hotchkis & Wiley, Richard Pzena (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Nelson Peltz (Trades, Portfolio), Mason Hawkins (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies also have significant positions in the stock.
Ryanair
The investor’s largest trade for the quarter was a 28.66% increase to her stake in Ryanair (RYAAY, Financial), buying 1.07 million shares. The transaction had an impact of 2.67% on the equity portfolio. Shares traded for an average price of $108.20 each during the quarter.
She now holds 4.8 million shares total, which represent 11.97% of the equity portfolio and is her largest position. GuruFocus says Ketterer has gained an estimated 43.67% on the investment since establishing it in the third quarter of 2016.
The Irish ultra low-cost airline has a market cap of $25.04 billion; its shares were trading around $110.90 on Thursday with a price-book ratio of 3.71 and a price-sales ratio of 7.04.
According to the GF Value Line, the stock is significantly overvalued currently.
Ryanair’s financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately 1.7 billion euros ($1.9 billion) in new long-term debt over the past three years, the company has weak interest coverage. The Altman Z-Score of 1.67 also warns it could be at risk of going bankrupt.
The company’s profitability fared better with a 6 out of 10 rating even though its negative margins and returns are underperforming a majority of industry peers. It also is being weighed down by a low Piotroski F-Score of 3, indicating operations are in poor shape, but still has a one-star predictability rank even though losses in operating income and declining revenue per share has been recorded over the past several years.
With a 4.77% stake, Baillie Gifford (Trades, Portfolio) is Ryanair’s largest guru shareholder. Other top guru shareholders include David Herro (Trades, Portfolio), Simons’ firm, the Causeway International Value (Trades, Portfolio) Fund, PRIMECAP Management (Trades, Portfolio), Julian Robertson (Trades, Portfolio), Pioneer Investments and Francis Chou (Trades, Portfolio).
Credicorp
The guru boosted her Credicorp (BAP, Financial) stake by 43.96%, buying 509,937 shares. The transaction had an impact of 1.27% on the equity portfolio. During the quarter, the stock traded for an average per-share price of $109.17.
Ketterer now holds 1.67 million shares total, accounting for 4.17% of the equity portfolio. It is also her fourth-largest holding. She has lost an estimated 9.2% on the investment since establishing it in the second quarter.
The financial services company headquartered in Peru has a $9.58 billion market cap; its shares were trading around $120.36 on Thursday with a price-earnings ratio of 12.07, a price-book ratio of 1.52 and a price-sales ratio of 2.74.
Based on the GF Value Line, the stock appears to be modestly undervalued currently.
GuruFocus rated Credicorp’s financial strength 3 out of 10. While debt-related ratios appear to be outperforming versus other players, assets are building up at a faster rate than revenue is growing, suggesting the company may be becoming less efficient.
The company’s profitability scored a 5 out of 10 rating. It is being supported by returns that outperform over half of its competitors as well as a moderate Piotroski F-Score of 4. Although revenue per share has declined in recent years, Credicorp still has a three-star predictability rank. GuruFocus says companies with this rank return an average of 8.2% annually.
Dodge & Cox is Credicorp’s largest guru shareholder with a 6.78% stake. Gurus who also have positions in the stock are Baillie Gifford (Trades, Portfolio), John Rogers (Trades, Portfolio), Ron Baron (Trades, Portfolio), Pioneer Investments, Jeremy Grantham (Trades, Portfolio), the iShares MSCI ACWI ex. U.S. ETF, Charles Brandes (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Diamond Hill Capital (Trades, Portfolio).
Hill-Rom Holdings
Ketterer divested of her entire position in Hill-Rom Holdings (HRC, Financial), selling 433,464 shares. The transaction had an impact of -1.01% on the equity portfolio. The stock traded for an average price of $134.94 per share during the quarter.
Based on GuruFocus data, Ketterer gained an estimated 40.77% on the investment.
The Chicago-based company, which provides hospital equipment and medical supplies, has a market cap of $10.28 billion; its shares were trading around $155.70 on Thursday with a price-earnings ratio of 41.86, a price-book ratio of 5.46 and a price-sales ratio of 3.44.
The GF Value Line suggests the stock is significantly overvalued currently.
Hill-Rom’s financial strength was rated 4 out of 10 by GuruFocus. Although the company has issued approximately $598 million in new long-term debt over the past three years, it is still at a manageable level due to adequate interest coverage. The robust Altman Z-Score of 3.57 also indicates it is in good standing. Value creation is occurring since the ROIC eclipses the WACC.
The company’s profitability scored an 8 out of 10 rating, driven by an expanding operating margin, strong returns that top over half of its industry peers and a high Piotroski F-Score of 7, which indicates business conditions are healthy. Consistent earnings and revenue growth have also contributed to a three-star predictability rank.
Of the gurus invested in Hill-Rom, George Soros (Trades, Portfolio) has the largest holding with 0.78% of its outstanding shares. Simons’ firm, Grantham, Pioneer Investments, Paul Tudor Jones (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Fisher also own the stock.
Alexandria Real Estate Equities
The investor shed her 249,493 remaining shares of Alexandria Real Estate Equities (ARE, Financial), impacting the equity portfolio by -0.93%. During the quarter, shares traded for an average price of $199 each.
GuruFocus estimates Ketterer gained 17.72% on the investment, which was established in the fourth quarter of 2020.
The real estate investment trust, which is headquartered in Pasadena, California, has a $32.10 billion market cap; its shares were trading around $206.97 on Thursday with a price-earnings ratio of 31.48, a price-book ratio of 2.14 and a price-sales ratio of 14.75.
According to the GF Value Line, the stock is modestly overvalued currently.
GuruFocus rated Alexandria’s financial strength 4 out of 10. As a result of issuing approximately $3.6 billion in new long-term debt over the past three years, the company has poor interest coverage. The weak Altman Z-Score of 1.8 warns the company could be at risk of going bankrupt. Assets are also building up at a faster rate than revenue is growing, so it may be becoming less efficient. Similarly, the REIT is struggling to create value since the WACC exceeds the ROIC.
The company’s profitability fared better, scoring a 6 out of 10 rating on the back of margins and returns that outperform over half of its competitors. Alexandria also has a moderate Piotroski F-Score of 4. Although the REIT has recorded a decline in revenue per share in recent years, it still has a 2.5-star predictability rank. GuruFocus data shows companies with this rank return, on average, 7.3% annually.
With a 0.84% stake, Baron is the company’s largest guru shareholder. Pioneer Investments, Chris Davis (Trades, Portfolio), Simons’ firm, Grantham, Primecap Management, Joel Greenblatt (Trades, Portfolio), Jones and Keeley-Teton Advisors, LLC (Trades, Portfolio) also have positions in the REIT.
Additional trades and portfolio composition
During the quarter, Ketterer also established positions in America Movil SAB de CV (AMX, Financial), Cemex SAB de CV (CX, Financial) and Jackson Financial Inc. (JXN, Financial), added to the Berry Global Group Inc. (BERY, Financial) holding and curbed the stakes in JD.com Inc. (JD, Financial), Exelon Corp. (EXC, Financial) and Oracle Corp. (ORCL, Financial). She also sold out of Quest Diagnostics Inc. (DGX, Financial).
Her $4.44 billion equity portfolio, which is composed of 81 stocks, is the most heavily invested in the technology sector with a weight of 26.15%.
