Sarah Ketterer (Trades, Portfolio), founder and CEO of Causeway Capital Management LLC, creates long-term capital growth for her shareholders through value-oriented investing. As discussed in the fund’s prospectus, Ketterer prefers stocks that have low valuations and good financial strength. During the second quarter, the fund invested in three new companies, including major Chinese online media company Baidu Inc. (BIDU, Financial).
Ketterer purchased 2,747,425 shares of Baidu at an average price of $175.62 per share, increasing her portfolio by 9.66%. The online media company currently has a financial strength rank of 7 and a profitability rank of 8, suggesting a strong financial outlook. Based on its Peter Lynch chart, Baidu is moderately undervalued.
Even though Baidu’s price-earnings ratio is relatively high, the Chinese online media company has a lower price-to-sales ratio than 73% of companies in its industry. Based on the median P/S valuation method, the company’s fair-value price is $458.81. The company is currently trading around 38% of its median P/S value. Additionally, Baidu has a lower price-to-book ratio than 65% of global Internet content and information companies.
The online media company also has strong returns on equity and capital, implying high potential for long-term growth. Baidu’s return on equity and Greenblatt return on capital outperform 94% and 83% of global Internet content and information companies, respectively. Additionally, since the return on invested capital outperforms the WACC, Baidu creates value as it grows.
Ketterer currently has the third highest number of shares in Baidu. Dodge & Cox, who has the second highest number of shares, added 4.46% to his Baidu position.
The Causeway Management CEO also purchased 489,263 shares of Biogen Inc. (BIIB, Financial) and 1,694,137 shares of PDC Energy Inc. (PDCE, Financial). The companies averaged $263.54 and $59.36 per share, respectively. With these two transactions, Ketterer increased her portfolio by 5.24% in the aggregate. Among these two companies, Biogen has a stronger financial outlook: the biotechnology company has a financial strength rank of 7 and a profitability rank of 9. On the other hand, PDCE has a financial strength rating of 5 and a profitability rank of 6.
Despite the modest financial metrics, PDCE has lower P/B and P/S ratios than does Biogen. Additionally, the oil exploration and production company has a lower price to operating cash flow (POCF) than 54% of companies in its industry.
See also
With the All-in-One Guru Screener, you can create customized screens from over 120 filters. Using Ketterer’s investment strategy, we can implement a customized screener with the following filters:
- The company’s P/E is less than the 30th percentile of its industry.
- The company has a (trailing) dividend yield of at least 3.5%.
- The company’s P/B ratio is less than 2.0.
- The company’s P/S ratio is less than 2.0.
- The company has a financial strength rank of at least 7.
Currently, only four stocks meet all of the above criteria.
Additionally, you can view all the latest guru picks and the Scoreboard under the “Gurus” tab. The Scoreboard tracks the performance of gurus based on their recent 13F filings.
Disclosure: The author has no position in any of the stocks mentioned in the article.
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