Nearly halfway through 2022, a few of Bill Nygren (Trades, Portfolio)’s stocks are trading close to their 52-week lows.
As the market continues to contend with rising inflation and interest rates, high gas prices, the Russia-Ukraine conflict and supply shortages, three stocks in the Oakmark Fund’s equity portfolio have dived.
Similarly, after posting a 28.7% total return for 2021, the S&P 500 Index has fallen around 13.85% year to date.
In order 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. He also 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 first-quarter 2022 commentary, Nygren discussed the current market environment, noting that when “confronted with global uncertainty, it can be difficult to imagine what the next year or even the next month will bring, and that can be scary.”
“When world events cause the stock market to fall, don’t join in the panic,” he wrote. “Check your portfolio. And if stocks have fallen meaningfully under your target weighting, take advantage of the cheaper prices.”
According to 13F filings, his equity portfolio consisted of 57 stocks as of the three months ended March 31, which was valued at $16.79 billion. Nygren’s holdings have posted mixed performances so far in 2022, with 15 of the top 20 positions declining.
As of Thursday, the three Nygren stocks that have collapsed to near their lowest prices in a year were HCA Healthcare Inc. (HCA, Financial), CBRE Group Inc. (CBRE, Financial) and Moody’s Corp. (MCO, Financial).
HCA Healthcare
Shares of HCA Healthcare (HCA, Financial) have dropped 1.77% over the past 12 months. After seeing a slight decline on Wednesday to close at $206.95, shares edged 0.21% higher on Thursday morning. The stock is currently 2.92% above its annual low of $198.69.
Nygren owns 1.5 million shares of the company, reflecting 2.24% of his equity portfolio.
The Nashville, Tennessee-based company, which owns and operates health care facilities across the U.S., has a $61.19 billion market cap; its shares were trading around $207.36 on Thursday with a price-earnings ratio of 9.75 and a price-sales ratio of 1.11.
GuruFocus rated HCA Healthcare’s financial strength 4 out of 10. Although the company has issued new long-term debt in recent years, it is manageable due to adequate interest coverage. The Altman Z-Score of 2.62, however, indicates the company is under some pressure. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s profitability fared better, scoring a 10 out of 10 rating on the back of operating margin expansion, strong returns on equity, assets and capital that top a majority of competitors and a high Piotroski F-Score of 8 out of 9, which indicates conditions are healthy. Consistent earnings and revenue growth also contributed to HCA’s predictability rank of five out of five stars. According to GuruFocus research, companies with this rank return an average of 12.1% annually over a 10-year period.
Of the many gurus invested in HCA Healthcare, the Vanguard Health Care Fund (Trades, Portfolio) has the largest stake with 0.88% of its outstanding shares. First Eagle Investment (Trades, Portfolio), Hotchkis & Wiley, Glenn Greenberg (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Larry Robbins (Trades, Portfolio), Charles Brandes (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance, among others, also have positions in the stock.
CBRE Group
CBRE Group’s (CBRE, Financial) shares have declined around 10% over the past year. After posting a small decline to close at $79.59 on Wednesday, shares were up 1.81% on Thursday morning. The stock is currently 4.64% above its yearly low of $76.35.
The investor owns 2.37 million shares of the company, which represent 1.29% of his equity portfolio.
The commercial real estate services and investment company, which is headquartered in Dallas, has a market cap of $26.27 billion; its shares were trading around $80.47 on Thursday with a price-earnings ratio of 13.91, a price-book ratio of 3.14 and a price-sales ratio of 0.94.
CBRE Group’s financial strength was rated 7 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the high Altman Z-Score of 3.75 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The WACC slightly exceeds the ROIC, but not by enough to be significant.
The company’s profitability also fared well with a 9 out of 10 rating, driven by operating margin expansion, strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 8. Steady earnings and revenue growth contributed to the four-star predictability rank. GuruFocus data shows companies with this rank return, on average, 9.8% annually.
With a 3.07% stake, Baillie Gifford (Trades, Portfolio) is CBRE’s largest guru shareholder. Other top guru investors include ValueAct Holdings LP, Al Gore (Trades, Portfolio)’s Generation Investment Management, John Rogers (Trades, Portfolio), Simons’ firm and Ron Baron (Trades, Portfolio).
Moody’s
Shares of Moody’s (MCO, Financial) have tumbled nearly 15% over the past year. Recording a loss on Wednesday to close at $282.39, shares rose 2.76% on Thursday morning. The stock is currently 5.94% above its annual low of $269.47.
The guru owns 329,871 shares of the company, accounting for 0.66% of his equity portfolio.
The New York-based financial services company that is known for providing credit ratings has a $53.43 billion market cap; its shares were trading around $290.17 on Thursday with a price-earnings ratio of 27.43, a price-book ratio of 22.32 and a price-sales ratio of 8.82.
GuruFocus rated Moody’s financial strength 5 out of 10. In addition to sufficient interest coverage, the robust Altman Z-Score of 4.93 indicates the company is in good standing despite assets building up at a faster rate than revenue is growing. The ROIC also eclipses the WACC, so value creation is occurring.
The company’s profitability scored a 9 out of 10 rating due to an expanding operating margin and returns that are outperforming versus competitors. Moody’s is also supported by a moderate Piotroski F-Score of 4, meaning conditions are typical for a stable company. Consistent earnings and revenue growth resulted in a three-star predictability rank. GuruFocus says companies with this rank return an average of 8.2% annually.
Warren Buffett (Trades, Portfolio) is the company’s largest guru shareholder with a 13.37% stake. Ckuck Akre, Baillie Gifford (Trades, Portfolio), Tom Gayner (Trades, Portfolio), the Ms Global Franchise Portfolio, Paul Tudor Jones (Trades, Portfolio) and several other gurus also have positions in Moody’s.
