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Bill Nygren Cruises Into Paccar, Trims 2 Top Holdings

Guru reveals portfolio for the 3rd quarter

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Dec 07, 2021
Summary
  • Nygren reduced his exposure to Meta Platforms and Alphabet.
  • He also added to his Intercontinental Exchange and ConocoPhillips stakes.
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Oakmark Fund manager

Bill Nygren (Trades, Portfolio) disclosed his third-quarter portfolio earlier this week.

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.

In his letter for the three months ended Sept. 30, Nygren noted that while the fund’s results were strong over the past year, Oakmark does not “focus on short-term performance.”

“As long-term value investors, we don’t make investments with the expectation that our thesis will play out quickly,” he wrote. “More important to our process is the price we’re paying compared to what we believe a business is worth. Our investments aren’t required to have ‘identifiable catalysts’ and won’t be accompanied with pre-determined expiration dates. Of course, we prefer if our value gaps close quickly—and sometimes they do—but the reality is that we invest in businesses without knowing precisely when the value will become properly reflected in the stock price.”

Keeping these considerations in mind, Nygren established one new position during the quarter, added to four holdings and trimmed a slew of other existing investments. Notable trades included a new stake in Paccar Inc. (

PCAR, Financial), increased bets on Intercontinental Exchange Inc. (ICE, Financial) and ConocoPhillips (COP, Financial) and reductions in the Meta Platforms Inc. (FB, Financial) and Alphabet Inc. (GOOGL, Financial) positions.

Paccar

The guru invested in a 1.5 million-share stake in Paccar (

PCAR, Financial), allocating it to 0.73% of the equity portfolio. The stock traded for an average price of $83.34 per share during the quarter.

The Bellevue, Washington-based company, which manufactures light, medium and heavy-duty trucks, has a $30.66 billion market cap; its shares were trading around $88.39 on Tuesday with a price-earnings ratio of 17.63, a price-book ratio of 2.7 and a price-sales ratio of 1.37.

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

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In his quarterly letter, Nygren noted that Paccar has “consistently grown its earnings power via market share gains, improved margins and above-average growth of its highly profitable parts and services business.”

“Despite operating in a cyclical industry, the company has been profitable for 82 consecutive years while steadily generating higher peak and trough EPS through each successive cycle,” he wrote. “We had the opportunity to purchase Paccar at what we believe is an attractive price due to transitory concerns related to Covid-19-induced supply chain pressures, elevated cyclical uncertainty and the longer term impact of powertrain electrification on the business.”

GuruFocus rated Paccar’s financial strength 5 out of 10. Although the company has issued approximately $290.1 million in new long-term debt over the past three years, it is still at a manageable level as a result of adequate interest coverage. The Altman Z-Score of 3.34, however, indicates it is in good standing even though assets are building up at a faster rate than revenue is growing. The return on invested capital is also higher than the weighted average cost of capital, meaning value is being created as the company grows.

The company’s profitability scored a 7 out of 10 rating. Although the operating margin is declining, its returns on equity, assets and capital outperform over half of its competitors. Paccar is also supported by a moderate Piotroski F-Score of 6 out of 9, indicating business conditions are typical for a stable company, and 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 Paccar, Hotchkis & Wiley has the largest stake with 0.96% of outstanding shares. Pioneer Investments, the

T Rowe Price Equity Income Fund (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Steven Cohen (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio) also have positions in the stock.

Intercontinental Exchange

Nygren upped his Intercontinental Exchange (

ICE, Financial) stake by 53.85%, buying 700,000 shares. The transaction had an impact of 0.50% on the equity portfolio. During the quarter, shares traded for an average price of $118.73 each.

The guru now holds 2 million shares total, accounting for 1.42% of the equity portfolio. GuruFocus estimates he has gained 14.65% on the investment so far.

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Operating global exchanges and clearing houses and providing mortgage technology, data and listing services, the company, which is headquartered in Atlanta, has a market cap of $75.38 billion; its shares were trading around $133.78 on Tuesday with a price-earnings ratio of 24.73, a price-book ratio of 3.49 and a price-sales ratio of 8.34.

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

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Intercontinental Exchange’s financial strength was rated 3 out of 10 by GuruFocus. Despite issuing approximately $6.5 billion in new long-term debt over the past three years, the company has sufficient interest coverage. The Altman Z-Score of 0.63, however, warns the company could be in danger of going bankrupt. The ROIC is also being overshadowed by the WACC, indicating the company is struggling to create value.

The company’s profitability fared better, scoring an 8 out of 10 rating on the back of an expanding operating margin and returns that outperform over half of its industry peers. Intercontinental also has a high Piotroski F-Score of 7, indicating conditions are healthy. Consistent earnings and revenue growth has contributed to a predictability rank of four out of five stars. GuruFocus says companies with this rank return an average of 9.8% annually.

With a 0.76% stake, Pioneer Investments is the company’s largest guru shareholder.

Ruane Cunniff (Trades, Portfolio), the MS Global Franchise Portfolio (Trades, Portfolio), Murray Stahl (Trades, Portfolio), Frank Sands (Trades, Portfolio), Catherine Wood (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio), among others, also have positions in Intercontinental Exchange.

ConocoPhillips

The investor increased the ConocoPhillips (

COP, Financial) stake by 24.06%, buying 1 million shares. The transaction had an impact of 0.42% on the equity portfolio. The stock traded for an average per-share price of $57.76 during the quarter.

Nygren now holds 5.15 million shares total, which represent 2.16% of the equity portfolio. GuruFocus says he has gained around 40.74% on the investment since establishing it in the first quarter of the year.

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The Houston-based oil and gas company has a $100.06 billion market cap; its shares were trading around $75.86 on Tuesday with a price-earnings ratio of 22.58, a price-book ratio of 2.27and a price-sales ratio of 2.69.

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

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GuruFocus rated ConocoPhillips’ financial strength 5 out of 10. While the company has sufficient interest coverage, the Altman Z-Score of 2.82 indicates the company is under some pressure. The WACC also eclipses the ROIC, indicating struggles with creating value.

The company’s profitability scored a 6 out of 10 rating on the back of margins and returns that beat over half of its competitors. ConocoPhillips also has a moderate Piotroski F-Score of 6, but the one-star predictability rank is on watch as a result of revenue per share declining over the past three years.

Dodge & Cox is the company’s largest guru shareholder with a 1.69% stake. Other gurus with significant positions in ConocoPhillips are

Ken Fisher (Trades, Portfolio), Pioneer Investments, the Smead Value Fund (Trades, Portfolio) and Elfun Trusts (Trades, Portfolio).

Meta Platforms

With an impact of -0.60% on the equity portfolio, Nygren curbed his Meta Platforms (

FB, Financial) stake by 17.44%, selling 281,000 shares. During the quarter, the stock traded for an average price of $360.33 per share.

He now holds 1.3 million shares, which account for 2.79% of the equity portfolio and is now his 10th-largest holding. GuruFocus data shows Nygren has gained an estimated 83.83% on the investment, which was established in the first quarter of 2018.

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The social media giant headquartered in Menlo Park, California, which recently changed its name from Facebook, has a market cap of $903.57 billion; its shares were trading around $324.82 on Tuesday with a price-earnings ratio of 23.2, a price-book ratio of 6.8 and a price-sales ratio of 8.33.

The GF Value Line suggests the stock is modestly undervalued currently.

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Meta Platforms’ financial strength was rated 7 out of 10 by GuruFocus, driven by a comfortable level of interest coverage and a robust Altman Z-Score of 17.3. The ROIC also exceeds the WACC, suggesting the company is creating value as it grows.

The company’s profitability fared even better with a 9 out of 10 rating. Despite recording a decline in its operating margin, Meta is supported by strong returns that top a majority of industry peers, a moderate Piotroski F-Score of 6 and steady earnings and revenue growth. It also has a five-star predictability rank. GuruFocus data show shows companies with this rank return an average of 12.1% annually.

Of the many gurus invested in Meta Platforms,

Baillie Gifford (Trades, Portfolio) has the largest stake with 0.28% of its outstanding shares. Fisher, Sands, Pioneer Investments, Chase Coleman (Trades, Portfolio), Spiros Segalas (Trades, Portfolio), Dodge & Cox, First Eagle Investment (Trades, Portfolio), Steve Mandel (Trades, Portfolio) and several other gurus also have large positions in the stock.

Alphabet

Impacting the equity portfolio by -0.51%, the investor trimmed his position in Alphabet (

GOOGL, Financial) by 12.82%, selling 34,500 Class A shares. During the quarter, Class A shares traded for an average price of $2,720.51 each.

He now holds 234,615 shares total, giving it 3.87% space in the equity portfolio. Nygren has gained an estimated 67.37% on the investment, which is his third-largest holding.

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The Mountain View, California-based tech company, which owns the Google search engine and YouTube, has a $1.96 trillion market cap; its shares were trading around $2,944.42 on Tuesday with a price-earnings ratio of 28.35, a price-book ratio of 8 and a price-sales ratio of 8.36.

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

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GuruFocus rated Alphabet’s financial strength 8 out of 10. In addition to comfortable interest coverage, the company is supported by a robust Altman Z-score of 13.77. The ROIC also surpasses the WACC, indicating good value creation is occurring.

The company’s profitability also fared well with a 9 out of 10 rating. Even though the operating margin is in decline, Alphabet is supported by strong returns that outperform a majority of competitors as well as a high Piotroski F-Score of 8. Boosted by consistent earnings and revenue growth, the company also has a five-star predictability rank.

Fisher has the largest stake in Alphabet with 0.28% of outstanding shares.

PRIMECAP Management (Trades, Portfolio), Pioneer Investments, Segalas, Sands, Davis and Daniel Loeb (Trades, Portfolio) also have notable positions in the stock.

Additional trades and performance

During the quarter, Nygren also added to his holdings of Humana Inc. (

HUM, Financial) and Citigroup Inc. (C, Financial). Among the positions that saw reductions were eBay Inc. (EBAY, Financial), Bank of America Corp. (BAC, Financial) and General Motors Co. (GM, Financial), along with many others.

The Oakmark Fund’s $16.2 billion equity portfolio, which is composed of 51 stocks, is most heavily invested in the financial services sector, followed by much smaller exposures to the communication services and technology spaces.

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GuruFocus data shows the fund returned 12.9% in 2020, underperforming the S&P 500’s 18.4% return.

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I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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