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David Herro Buys Adidas and Siemens, Adds to Prosus Stake

Guru reveals 1st-quarter portfolio

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May 27, 2022
Summary
  • The investor entered five positions during the quarter, including Adidas and Siemens.
  • He sold out of three stocks.
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David Herro (Trades, Portfolio), manager of Harris Associates’ Oakmark International Fund, disclosed his portfolio for the first quarter of 2022 earlier this week.

The guru, who also manages the Chicago-based firm’s International Small Cap and Global Select funds, searches for value opportunities among foreign mid- and large-cap companies that are trading at a significant discount to his estimate of intrinsic value. His goal is to generate long-term capital appreciation by patiently waiting for the gap between the stock price and intrinsic value to close.

The 13 filing showed Herro established five new positions during the three months ended March 31, sold out of three stocks and added to or trimmed a slew of other holdings. His most notable trades included new positions in Adidas AG (

XTER:ADS, Financial) and Siemens AG (XTER:SIE, Financial), a boost to the Prosus NV (XAMS:PRX, Financial) stake and reduced bets on Bayer AG (XTER:BAYN, Financial) and Glencore PLC (LSE:GLEN, Financial).

Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.

Adidas

The guru invested in 957,300 shares of Adidas (

XTER:ADS, Financial), allocating 0.93% of the equity portfolio to the holding. The stock traded for an average price of 228.96 euros ($245.86) per share during the quarter.

The German company, which designs and manufactures shoes, apparel and accessories, has a market cap of 33.96 billion euros; its shares closed at 176.76 euros on Thursday with a price-earnings ratio of 16.22, a price-book ratio of 4.51 and a price-sales ratio of 1.61.

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

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GuruFocus rated Adidas financial strength 6 out of 10. Although the company has issued new long-term debt in recent years, it is manageable due to sufficient interest coverage. The Altman Z-Score of 3.38 also indicates the company is in good standing despite recording losses in operating income. Furthermore, the return on invested capital overshadows the weighted average cost of capital, meaning value is being created as Adidas grows.

The company’s profitability also fared well with an 8 out of 10 rating. While the operating margin has declined, its returns on equity, assets and capital top a majority of competitors. Adidas is also supported by a high Piotroski F-Score of 9 out of 9, meaning business conditions are healthy, and consistent earnings and revenue growth contributed to a predictability rank of 3.5 out of five stars. According to GuruFocus, companies with this rank return an average of 9.3% annually over a 10-year period.

Herro has the largest position in the company’s Germany-listed stock, holding 0.50% of its outstanding shares. The iShares MSCI ACWI ex. U.S. Exchange-Traded Fund also has a position.

Siemens

Herro picked up 1.5 million shares of Siemens (

XTER:SIE, Financial), dedicating 0.88% of the equity portfolio to the stake. Shares traded for an average price of 136.64 euros each during the quarter.

The industrial conglomerate headquartered in Munich, which sells components and equipment for factory automation, railways, electrical distribution and health care, has a market cap of 95.10 billion euros; its shares closed around 118.52 euros on Thursday with a price-earnings ratio of 18.55, a price-book ratio of 2.1 and a price-sales ratio of 1.43.

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

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Siemens’ financial strength was rated 5 out of 10 by GuruFocus. While the company has issued new long-term debt over the past several years, it is still manageable due to adequate interest coverage. The Altman Z-Score of 1.74, however, warns the company could be at risk of bankruptcy. Value is being created since the ROIC eclipses the WACC.

The company’s profitability scored a 6 out of 10 rating on the back of operating margin expansion and returns that outperform over half of its industry peers. Siemens also has a moderate Piotroski F-Score of 6, indicating conditions are typical for a stable company. Despite a decline in revenue per share over the past five years, it also still has a one-star predictability rank. GuruFocus research shows companies with this rank return an average of 1.1% annually.

With a 0.19% stake, Herro is now the company’s largest guru shareholder in its home market. Other guru investors of Siemens are the

T Rowe Price Equity Income Fund (Trades, Portfolio), the Causeway International Value (Trades, Portfolio) Fund, the iShares MSCI ACWI ex. U.S. ETF and the CI Select Canadian Equity Fund (Trades, Portfolio).

Prosus

The investor increased the Prosus (XAMS: PRX) stake by 78.81%, buying 5.05 million shares. The transaction had an impact of 1.13% on the equity portfolio. During the quarter, the stock traded for an average per-share price of 62.84 euros.

Herro now holds 11.45 million shares total, which account for 2.57% of the equity portfolio as is now the 10th-largest holding. GuruFocus estimates he has lost 28.26% on the investment since the third quarter of 2021.

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The Netherlands-based company, which provides internet services around the world, has a market cap of 142.24 billion euros; its shares closed at 45.35 euros on Thursday with a price-earnings ratio of 4.22, a price-book ratio of 2 and a price-sales ratio of 14.28.

While there is not enough data to generate a GF Value Line, the stock appears to be trading below its intrinsic value based on the Peter Lynch chart.

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GuruFocus rated Prosus’ financial strength 6 out of 10, driven by a high Altman Z-score of 9.65 that indicates it is in good standing despite recording losses in operating income. The company has issued $3.6 billion in new long-term debt over the past three years, though, which has hurt its interest coverage.

The company’s profitability did not fare as well, scoring a 3 out of 10 rating. While the operating margin is negative, returns beat a majority of competitors. Prosus also has a moderate Piotroski F-Score of 5.

Of the gurus invested in Prosus, Herro has the largest stake with 0.37% of its outstanding Amsterdam-listed shares.

Steven Romick (Trades, Portfolio), the Invesco EQV European Equity Fund (Trades, Portfolio) and the iShares ETF also have positions in the stock.

Bayer

With an impact of -1.02% on the equity portfolio, the guru curbed the Bayer (

XTER:BAYN, Financial) holding by 26.76%, selling 5.12 million shares. The stock traded for an average price of 53.29 euros per share during the quarter.

Herro now holds 13.97 million shares total, representing 3.97% of the equity portfolio and remaining his largest holding. GuruFocus data shows he has lost an estimated 9.75% on the investment over its lifetime.

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The German pharmaceutical company has a market cap of 64.74 billion euros; its shares closed at 65.90 euros on Thursday with a price-earnings ratio of 29.43, a price-book ratio of 1.73 and a price-sales ratio of 1.40.

Based on the GF Value Line, the stock appears to be fairly valued currently.

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Bayer’s financial strength was rated 6 out of 10. Despite having adequate interest coverage, the Altman Z-Score of 0.98 warns the company could be in danger of going bankrupt if it does not improve its liquidity. The ROIC also slightly exceeds the WACC, so value creation is occurring.

The company’s profitability scored a 7 out of 10 rating on the back of margins and returns that are outperforming versus industry peers. Bayer is also supported by a high Piotroski F-Score of 8 as well as a one-star predictability rank.

Herro has the largest position in Bayer’s Germany-listed shares with a 1.42% stake. Other guru investors are Causeway, the iShares ETF and

Azvalor Blue Chips FI (Trades, Portfolio).

Glencore

Impacting the equity portfolio by -1%, Herro cut the Glencore (

LSE:GLEN, Financial) position by 34.14%, selling 52.73 million shares. During the quarter, shares traded for an average price of 4.35 pounds ($5.48) each.

The investor now holds a total of 101.74 million shares, which make up 2.75% of the equity portfolio and is the ninth-largest holding. According to GuruFocus data, he has gained an estimated 35.86% on the investment so far.

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The Switzerland-based company, which mines for metals and minerals around the world, has a market cap of 68.25 billion pounds; its London-listed shares closed at 5.19 pounds on Thursday with a price-earnings ratio of 18.95, a price-book ratio of 2.28 and a price-sales ratio of 0.46.

The GF Value Line suggests the stock is significantly overvalued currently.

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Glencore’s financial strength and profitability were both rated 5 out of 10 by GuruFocus. Despite having sufficient interest coverage, the Altman Z-Score of 2.59 indicates the company is under some pressure. The WACC surpasses the ROIC, indicating it is struggling to create value.

The company is also being supported by an expanding operating margin, strong returns that top a majority of competitors and a high Piotroski F-Score of 8. Although Glencore has recorded a decline in revenue per share over the past several years, it still has a one-star predictability rank.

With a 0.77% stake, Herro is the company’s largest guru shareholder. Romick,

Azvalor Internacional FI (Trades, Portfolio), the iShares ETF and Azvalor Blue Chips also have positions in Glencore.

Additional trades and portfolio performance

During the quarter, the guru also entered new positions in Koninklijke Philips NV (

XAMS:PHIA, Financial), Edenred SA (XPAR:EDEN, Financial) and Iveco Group NV (MIL:IVG, Financial), sold out of Naspers Ltd. (JSE:NPN, Financial) and added to Daimler Truck Holdings AG (XTER:DTG, Financial), among several other transactions.

Herro’s $24.07 billion equity portfolio, which is composed of 67 stocks, is most heavily invested in the consumer cyclical and financial services sectors.

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The investor’s Oakmark International Fund posted a return of 9.03% for 2021, ­­underperforming the MSCI World Index ex. U.S.’s 13.17% return.

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Disclosures

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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