Causeway Capital Management leader Sarah Ketterer (Trades, Portfolio) disclosed 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, the 13F filing shows Ketterer’s firm entered 11 new positions during the three months ended June 30, sold out of six stocks and trimmed or added to a number of other existing investments. The most significant trades included a new stake in Wells Fargo & Co. (WFC, Financial), an increased bet on Canadian National Railway Co. (CNI, Financial) and reductions of the Alphabet Inc. (GOOG, Financial), WestRock Co. (WRK, Financial) and Infosys Ltd. (INFY, Financial) holdings.
Investors should be aware 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.
Wells Fargo
Having previously sold out of Wells Fargo (WFC, Financial) in the first quarter of 2021, Ketterer invested in a new 1.23 million-share stake, allocating 1.21% of the equity portfolio to it. The stock traded for an average price of $43.96 per share during the quarter.
The San Francisco-based bank has a $173.98 billion market cap; its shares were trading around $45.91 on Thursday with a price-earnings ratio of 11, a price-book ratio of 1.1 and a price-sales ratio of 2.44.
The GF Value Line suggests the stock is fairly valued currently based on its historical ratios, past performance and analysts’ future earnings estimates.
GuruFocus rated Wells Fargo’s financial strength 3 out of 10 as it is being weighed down by weak debt-related ratios.
The company’s profitability fared better with a 6 out of 10 rating despite having margins and returns on equity, assets and capital that are underperforming at least half of its competitors. Regardless, Wells Fargo has a moderate Piotroski F-Score of 6 out of 9, indicating operating conditions are typical of a stable company. Consistent earnings and revenue growth also contributed to its predictability rank of 4.5 out of five stars. According to GuruFocus research, companies with this rank return an average of 10.6% annually over a 10-year period.
Of the gurus invested in Wells Fargo, Dodge & Cox has the largest stake with 3.25% of outstanding shares. PRIMECAP Management (Trades, Portfolio), Chris Davis (Trades, Portfolio), Hotchkis & Wiley, Richard Pzena (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Jeremy Grantham (Trades, Portfolio) and several other gurus also have significant positions in the stock.
Canadian National Railway
The investor’s largest trade for the quarter was a 97.1% increase to her stake in Canadian National Railway (CNI, Financial), picking up 2.49 million shares. The transaction had an impact of 7.01% on the equity portfolio. Shares traded for an average price of $117.14 each during the quarter.
She now holds 5.07 million shares total, which represent 14.22% of the equity portfolio and is her largest position. GuruFocus says Ketterer has gained an estimated 5.58% on the investment since establishing it in the fourth quarter of 2021.
The Canadian railroad company, which provides freight services in Canada and parts of the U.S., has a market cap of $88.35 billion; its shares were trading around $128.43 on Thursday with a price-earnings ratio of 22.78, a price-book ratio of 5.25 and a price-sales ratio of 7.57.
According to the GF Value Line, the stock is fairly valued currently.
Canadian National’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued new long-term debt in recent years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 3.78 also indicates it is in good standing. The return on invested capital overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s profitability fared even better, scoring a 9 out of 10 rating. Even though its margins are in decline, returns outperform over half of its industry peers. Canadian National is also supported by a high Piotroski F-Score of 8, indicating operations are healthy. Steady earnings and revenue growth have also contributed to a 3.5-star predictability rank. GuruFocus data shows companies with this rank return an average of 9.3% annually.
With a 1.50% stake, Bill Gates (Trades, Portfolio)’ foundation trust has the largest stake in Canadian National. Other top guru investors include Louis Moore Bacon (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Keeley-Teton Advisors, LLC (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and First Eagle Investment (Trades, Portfolio).
Alphabet
Impacting the equity portfolio by -1.23%, the guru curbed her Alphabet (GOOG, Financial) position by 33.25%, selling 18,487 Class C shares. During the quarter, the stock traded for a split-adjusted average per-share price of $118.50.
Ketterer now holds 742,200 shares, accounting for 2.02% of the equity portfolio. GuruFocus estimates she has gained 38.99% on the investment since establishing it in the third quarter of 2020.
The tech conglomerate headquartered in Mountain View, California, which is the parent company of Google and YouTube, has a $1.56 trillion market cap; its Class C shares were trading around $120.65 on Thursday with a price-earnings ratio of 22.21, a price-book ratio of 6.12 and a price-sales ratio of 5.84.
Based on the GF Value Line, the stock appears to be modestly undervalued.
Alphabet’s financial strength and profitability were both rated 9 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the company is supported by a robust Altman Z-score of 12.14 that indicates it is in good standing. The ROIC also eclipses the WACC, indicating value creation is occurring.
Along with operating margin expansion, the company is supported by strong returns that top a majority of competitors. It also has a moderate Piotroski F-Score of 6. Boosted by consistent earnings and revenue growth, Alphabet also has a two-star predictability rank. GuruFocus found companies with this rank return, on average, 6% annually.
Dodge & Cox has the largest stake in Alphabet’s Class C stock with 0.02% of outstanding shares. Spiros Segalas (Trades, Portfolio), Tom Russo (Trades, Portfolio), First Eagle, Davis, Mairs and Power (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), Al Gore (Trades, Portfolio), Fisher, Seth Klarman (Trades, Portfolio), Li Lu (Trades, Portfolio) and several other gurus also have notable positions in the stock.
WestRock
With an impact of -1.01% on the equity portfolio, Ketterer trimmed the WestRock (WRK, Financial) holding by 43.23%, shedding 897,400 shares. The stock traded for an average price of $47.03 per share during the quarter.
She now holds 1.17 million shares in total, which make up 1.17% of the equity portfolio. GuruFocus data shows Ketterer has lost an estimated 8.22% on the investment so far.
The Atlanta-based company, which manufactures paper and corrugated packaging products, has a market cap of $10.69 billion; its shares were trading around $42.05 on Thursday with a price-earnings ratio of 12.02, a price-book ratio of 0.93 and a price-sales ratio of 0.53.
The GF Value Line suggests the stock is modestly undervalued currently.
GuruFocus rated WestRock’s financial strength 5 out of 10. In addition to weak interest coverage, the low Altman Z-Score of 1.45 warns the company could be at risk of bankruptcy. The WACC also surpasses the ROIC, so it is struggling to create value.
The company’s profitability scored a 7 out of 10 rating on the back of an expanding operating margin. Its returns, however, are underperforming at least half of its industry peers. WestRock also has a high Piotroski F-Score of 8 and a one-star predictability rank. GuruFocus says companies with this rank return an annual average of 1.1%.
Despite the reduction, Ketterer remains WestRock’s largest guru shareholder with a 0.46% stake. Robert Olstein (Trades, Portfolio), Arnold Van Den Berg (Trades, Portfolio), Dalio and Greenblatt also own the stock.
Infosys
The investor reduced her stake in Infosys (INFY, Financial) by 29.10%, selling 1.51 million shares. The transaction impacted the equity portfolio by -0.90%. During the quarter, shares traded for an average price of $19.97 each.
Ketterer now holds a total of 3.68 million shares, giving it 1.70% space in the equity portfolio. She has gained an estimated 24.48% on the investment over its lifetime.
The Indian company, which provides business consulting, information technology and outsourcing services, has an $84.50 billion market cap; its shares were trading around $19.95 on Thursday with a price-earnings ratio of 30.50, a price-book ratio of 9.17 and a price-sales ratio of 5.24.
According to the GF Value Line, the stock is fairly valued currently.
Infosys’ financial strength was rated 9 out of 10 by GuruFocus, driven by a comfortable level of interest coverage and a robust Altman Z-Score of 11.17. The ROIC also outshines the WACC, indicating good value creation is occurring.
The company’s profitability fared even better, scoring a 10 out of 10 rating. Although the gross margin is in decline, Infosys has strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 4. The company also has a five-star predictability rank due to consistent earnings and revenue growth. GuruFocus research shows companies with this rank return an average of 12.1% annually.
With a 0.34% stake, Fisher is Infosys’ largest guru shareholder. Other top guru investors are Baillie Gifford (Trades, Portfolio), Grantham, Simons’ firm, John Hussman (Trades, Portfolio) and Caxton Associates (Trades, Portfolio).
Additional trades and portfolio composition
During the quarter, Ketterer also established a position in Vale SA (VALE, Financial), added to the Carrier Global Corp. (CARR, Financial), Ryanair Holdings PLC (RYAAY, Financial) and Daqo New Energy Corp. (DQ, Financial) holdings and cut back the Essent Group Ltd. (ESNT, Financial) stake.
Her $4.01 billion equity portfolio, which is composed of 81 stocks, is most heavily invested in the industrials and technology sectors.
