Bill Nygren (Trades, Portfolio)'s Oakmark Fund has not released its third quarter update as of Wednesday, but he disclosed two new purchases in his third quarter letter, relased last week.
The Oakmark Fund declined 5% for the fiscal year ended Sept. 30, while the S&P 500 slid 1%. Increased market volatility negatively impacted returns, Nygren said, but he expected better returns owing to the firm’s focus on business value and its long holding periods.
“We typically view heightened volatility as an opportunity to buy undervalued companies at attractive prices,” Nygren said.
Nygren said he bought a position in Anadarko Petroleum Corp. (APC, Financial) at a price of $60 per share, commenting:
“Anadarko Petroleum is a large oil and gas exploration and production company with operations in the United States and abroad. We believe the company has an excellent track record of discovering and developing profitable oil and gas reserves, and management has a reputation for being best-in-class operators. Anadarko has been able to consistently increase its proved reserves at costs that are well below industry averages, adding value in the process. Most importantly, management seeks to maximize per-share asset value with its capital allocation decisions and has shunned the “growth at all costs” mentality prevalent at many peers. This approach has encouraged low-cost development and intelligent asset monetization, which we believe is creating significant value. Like many oil and gas stocks, however, Anadarko shares have been affected by falling oil and gas prices, driving them down from a high of $110 last year to a low of $59 last quarter. We believe this substantially undervalues Anadarko’s asset base. After adjusting for the company’s stakes in public midstream equities and in large non-producing oil and gas assets, which are not needed to support future production growth, we believe Anadarko is attractively valued on multiples of earnings and cash flow. In our view, this is a best-in-class company that is trading at a discount to lower quality peers in an already depressed industry, making Anadarko an attractive addition to our portfolio.”
Anadarko Petroleum Corp. was incorporated in the State of Delaware. Anadarko Petroleum Corp. has a market cap of $36.36 billion; its shares were traded at around $71.57 with and P/S ratio of 2.76. The dividend yield of Anadarko Petroleum Corp stocks is 1.51%. Anadarko Petroleum Corp. had an annual average earnings growth of 9.4% over the past five years.
Nygren also purchased shares of Cummins Inc. (CMI, Financial) at $109 per share, saying:
"The Oakmark Fund previously held shares in Cummins from the third quarter of 2012 through the second quarter of 2014. Cummins is the world’s largest non-affiliated engine manufacturer, and it has a strong global distribution network. North America remains its largest market, but faster growing emerging markets account for almost one-third of the company’s revenues. Cummins is also a leader in emissions control technology, which should lead to favorable revenue growth as more countries mandate tougher emissions standards. Global economic weakness has hurt the company’s results, but we are encouraged by management’s ability to innovate, cut costs and allocate capital wisely. The share price has fallen considerably from when we eliminated the position in the second quarter of 2014 when the business was valued at over 15x 2014 earnings, and we believe the business is now attractively valued at a below-average multiple of 11x expected 2015 earnings."
Cummins Inc. is a diesel engine manufacturer. The company designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems and electric power generation systems. Cummins Inc. has a market cap of $19.54 billion; its shares were traded at around $109.37 with a P/E ratio of 11.52 and P/S ratio of 1.01. The dividend yield of Cummins Inc. stocks is 3.01%. Cummins Inc. had an annual average earnings growth of 13.10% over the past 10 years. GuruFocus rated Cummins Inc. the business predictability rank of 3-star.
At the end of the second quarter, Nygren’s Oarkmark Fund listed 58 stocks and had a total value of $16.9 billion. Its top-represented sector was financial services, encompassing 35.1% of holdings. His largest positions were in Bank of America (BAC, Financial) and Apache Corp. (APA, Financial).
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