David Herro (Trades, Portfolio) of Harris Associates appeared on Bloomberg TV on Nov. 15 and talked about the Harris portfolio.
Twenty-one percent of his portfolio is in the U.K. He believes there is great value to be found in the U.K. because of Brexit-induced uncertainty. In the coming months (supposedly before March 2019) the uncertainty will be resolved one way or another, he said. Meanwhile, business continues pretty much as usual while stock market valuations are substantially down. Stocks that have been hit the hardest look the best.
Lloyds Banking Group (LLOY, Financial) and Royal Bank of Scotland (RBS, Financial)
These financials should do very well. Earnings have not been hit. Their share prices have been hit. The European financial sector is one of the best places to find value today. Lloyds is down 20% year to date. RBS is down about 15% year to date. Earnings for both companies are up about 10% for the year. Lloyds trades around 0.84x book value and 11x earnings. RBS trades at 0.63x book value and 34x earnings.
Travis Perkins
This company sells into the building trade. It could rally very hard after uncertainty resolves. It trades at about 15 earnings and about 10x EV-Ebit.
Commodities
He owns only one energy company, Cenovus Energy (CVE, Financial), of Canada. Herro is long-term bearish on oil because demand is falling in the developed world through electric vehicles and other trends. He views the drop in the price of oil as a temporary phenomon because producers are not really moving in the same direction.
Portfolio
Below are the top 25 names in the Oakmark International Portfolio. Its top five positions include four European banks, including the Italian Intesa Sanpalo (ISP, Financial) and a fashion retailer. If that doesn't look like a true contrarian fund, I don't know what does.
Disclosure: No positions in any stocks discussed.
