Oakmark, a long-term focused value investment firm, increased its holdings in what it called its “top detractors” -- stocks whose prices dropped -- of its international fund in the second quarter. Oakmark International underperformed the S&P benchmark with a -1% return this year through mid-September. Managers, however, viewed the short-term dip as an opportunity to buy more stocks it considers good values at even better prices.
“We buy when other investors’ fear drives prices down of quality businesses creating value, and sell when momentum drives price well beyond our measurement of intrinsic value,” Oakmark said.
Over the long term, Oakmark International has produced strong returns of 11% per year since its 1992 inception.
The top-detractor stocks producing negative returns in the second quarter of which Oakmark bought more are: CNH Industrial (MIL:CNHI, Financial), Intesa Sanpaolo (MIL:ISP, Financial), Orica (ASX:ORI, Financial), Credit Suisse Group (XSWX:CSGN, Financial) and BNP Paribas (XPAR:BNP, Financial).
CNH Industrial (CNHI)
CNH Industrial shares fell 8.5% in the second quarter, and Oakmark increased its stake by 62%. CHN Industrial on Monday is priced near a one-year low at 6.23 euros per share.
The second quarter reflected Oakmark’s fourth straight quarter increasing its position in the company. Oakmark International fund purchased 10,399,000 shares in the second quarter when the price averaged around $8.
CNH Industrial NV has a market cap of $10.54 billion; its shares were traded at around $7.82 with a P/E ratio of 17.10 and P/S ratio of 0.30. The dividend yield of CNH Industrial NV stocks is 3.60%.
Intesa Sanpaolo (MIL:ISP, Financial)
While Intesa Sanpaolo shares declined by 7.3% in the second quarter, Oakmark upped its stake by 53%. Oakmark International fund purchased 82,461,000 shares in the second quarter when the price averaged 2 euros per share. On Monday, Intesa Sanpaolo trades around a three-year high share price.
Intesa Sanpaolo is a banking group that was formed by the merger of Banca Intesa and Sanpaolo IMI. Intesa Sanpaolo has a market cap of $37.48 billion; its shares were traded at around 2.42 euros with a P/S ratio of 3.84. The dividend yield of Intesa Sanpaolo stocks is 1.65%.
Orica shares declined by 7.5% in the second quarter, making it the fourth largest detractor of its portfolio. Oakmark increased its position in the company by 20% in the first quarter, but did not in this case buy additional shares in the second quarter. Oakmark International fund owns 9.2% of the Australian company, with 34,085,000 shares in total.
Orica Ltd. was founded in 1974. The company is a manufacturer of industrial & specialty chemicals, commercial explosives and mining chemicals, paints and other consumer products in Australasia. Orica Ltd. has a market cap of $7.38 billion; its shares were traded at around $19.81 with a P/E ratio of 12.00 and P/S ratio of 1.05. The dividend yield of Orica Ltd. stocks is 4.80%. Orica Ltd. had an annual average earnings growth of 8.40% over the past 10 years.
Credit Suisse Group (XSWX:CSGN, Financial)
Credit Suisse was the second worst performer in Oakmark’s portfolio, falling in price by 9.3% in the second quarter. Oakmark managers expanded their take in the company by 14%. At 5.2% of the portfolio, it is also the largest position in the Oakmark International fund, which holds 56,697,000 shares in total.
Credit Suisse Group was incorporated on March 3, 1982 and July 5, 1856, respectively, with unlimited duration. Credit Suisse Group has a market cap of $41.82 billion; its shares were traded at around $26.14 with and P/S ratio of 1.68. The dividend yield of Credit Suisse Group stocks is 1.76%.
David Herro (Trades, Portfolio), manager of the Oakmark International fund, commented on the holding in his second quarter letter:
“Credit Suisse Group (XSWX:CSGN), the Swiss-based financial services company, was the largest detractor for the quarter, declining 9%. First-quarter results released in April were mixed. Overall revenues and net profit were less than market expectations, while net new money inflows in the wealth management/private banking and asset management divisions were strong. Margins in wealth management and asset management also expanded. In May, Credit Suisse announced that it settled its U.S. tax evasion case that resulted in a total fine of CHF 2.5 billion (USD 2.8 billion). Credit Suisse was not required to relinquish any of its licenses, and its internal due diligence suggests that no clients have terminated their relationship due to the issue. We are pleased that this situation is finally resolved. Although Credit Suisse’s Tier 1 capital ratio declined to 9.3% based on its first-quarter results, management expects to exceed a level of 10% by current year-end. Management also stated that the company plans to return approximately half of its earnings to shareholders, which is better than the 35% previously announced. Lastly, Credit Suisse issued USD 5 billion of senior debt during the quarter, its first large senior debt sale in three years. Despite its settlement with the U.S. authorities, the deal attracted USD 10 billion of demand. We believe this illustrates that Credit Suisse’s fundamentals are sound and that it is still an attractive investment.”
BNP Paribas (XPAR:BNP, Financial)
Oakmark’s most significant detractor was BNP Paribas, whose share price dropped 10.3% during the quarter, while Oakmark increased its position by 10%. The company’s price on Monday hovers near a five-year high at 54 euros per share. Oakmark International fund holds 15,985,000 shares of the company in total as of second quarter end.
BNP Paribas is a financial services company specializing in investment, finance, and asset management services. BNP Paribas has a market cap of $67.18 billion; its shares were traded at around $54.00 with a P/E ratio of 771.40 and P/S ratio of 0.79. The dividend yield of BNP Paribas stocks is 2.78%. BNP Paribas had an annual average earnings growth of 9.0% over the past 10 years.
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