David Herro (Trades, Portfolio), manager of the Oakmark International Fund, acquired two new holdings and sold another in the third quarter.
Herro has managed the Oakmark International Fund since its inception in 1992. He also manages the Oakmark International Small Cap Fund and the Oakmark Global Select Fund. The fund seeks long-term capital appreciation in foreign stocks. Herro buys businesses that are trading at a discount to their intrinsic values, are expected to grow shareholder value over time and have management teams that act as owners.
The investor purchased 140,225,000 shares of The Royal Bank of Scotland Group (LSE:RBS, Financial) for an average price of 1.88 pounds ($2.39) per share. The trade had an impact of 1.4% on the portfolio.
The Royal Bank of Scotland is involved in international banking and financial services. The company has a market cap of 25.9 billion pounds. It has a forward price-earnings (P/E) ratio of 14.6, a price-book (P/B) ratio of 0.5 and a price-sales (P/S) ratio of 2.14.
GuruFocus ranked the company’s financial strength 5 of 10. The low Piotroski F-Score of 3 suggests the company has a poor business operation. The company will destroy value as it grows because the return on invested capital (ROIC) underperforms the weighted average cost of capital (WACC). However, the cash-debt ratio of 3.6 is above the industry median and outperforms 59% of its competitors.
GuruFocus ranked its profitability and growth 2 of 10. The operating margin and net margin are both negative as are the returns. The return on equity (ROE) and return on assets (ROA) underperform 95% and 93% of other companies in the global banks industry.
With his purchase, Herro became the company’s largest shareholder among the gurus with 1.19% of outstanding shares. This represents 1.4% of his total assets managed. The T Rowe Price Equity Income Fund (Trades, Portfolio) also holds a position.
The DCF Calculator gives the stock a fair value of -4.92 pounds; it was trading at 2.2 pounds Tuesday.
Herro bought 1,768,000 shares of Olympus Corp. (TSE:7733, Financial) for an average price of 3,520.76 yen ($30.54) per share. The transaction had an impact of 0.3% on the portfolio. Herro previously sold out of Olympus in the first quarter.
Olympus manufactures optics and reprography products. The Japanese company has a market cap of 1.4 trillion yen and an enterprise value of 1.6 trillion yen. It has a P/E ratio of 29.14, a P/B ratio of 4.03 and a P/S ratio of 1.9.
GuruFocus ranked Olympus’ financial strength 6 of 10. The Piotroski F-Score of 4 and Altman Z-Score of 3.2 suggest the company is stable and in good financial condition. Since the ROIC outperforms the WACC, value is being created as the company grows.
As for profitability and growth, GuruFocus ranked it 5 of 10. It has an operating margin of 11.7% and a net margin of 6.5%. The ROE and ROA outperform 76% and 65% of other companies in the global medical instruments and supplies industry. Similarly, the return on capital (ROC) outperforms 70% of competitors.
The Vanguard Health Care Fund (Trades, Portfolio) is Olympus’ largest shareholder among the gurus with 1.74% of outstanding shares. This represents 0.45% of its total assets managed. The T. Rowe Price Japan Fund (Trades, Portfolio) also holds a position.
The DCF Calculator gives the stock a fair value of 1,531.19 yen; it was trading at 4,170 yen Tuesday.
Herro sold out of Sumitomo Mitsui Financial Group Inc. (TSE:8316, Financial). He sold the remaining 10,726,000 shares for an average price of 3,333.62 yen per share. The trade impacted the portfolio by -1.4%. He had been reducing the position since the second quarter of 2016.
Sumitomo is a Japanese bank holding and financial services company. It has a market cap of 5.7 trillion yen. It has a P/E ratio of 7.9, a forward P/E ratio of 9.2, a P/B ratio of 0.7 and a P/S ratio of 1.7.
GuruFocus ranked the company’s financial strength 5 of 10. The low Piotroski F-Score of 3 suggests the company has a poor business operation. The cash-debt ratio and interest coverage ratio both exceed the industry median and outperform 52% and 63% of competitors.
Sumitomo’s profitability and growth was ranked 6 of 10 by GuruFocus. It has an operating margin of 32.3% and a net margin of 22.3%. The ROE outperforms 54% of other companies in the global banks industry. In contrast, the ROA underperforms 74% of competitors.
The Causeway International Value (Trades, Portfolio) Fund is the company’s largest shareholder among the gurus with 0.3% of outstanding shares. This represents 2.1% of its total assets managed. The Hennessy Japan Fund (Trades, Portfolio) also holds a position.
The DCF Calculator gives the stock a fair value of 6,372.5 yen; it was trading at 4,730 yen Ă‚ Tuesday.
View Herro’s portfolio here.
Disclosure: I do not own stock in any companies mentioned in the article.
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