Oakmark Fund manager Bill Nygren (Trades, Portfolio) released his third-quarter portfolio on Thursday, listing two new holdings.
The guru, who also manages the Chicago-based firm’s Select and Global Select funds, invests in mid- and large-cap companies to achieve capital appreciation. When picking stocks, he looks for growing companies that have shareholder-oriented management teams. He will take a position when the stock is trading at a substantial discount to his estimate of intrinsic value.
Based on these criteria, the investor established positions in DXC Technology Co. (DXC, Financial) and Charles Schwab Corp. (SCHW, Financial) during the quarter.
DXC Technology
Nygren invested in 2.6 million shares of DXC Technology for an average price of $88.49 per share, allocating 1.18% of the equity portfolio to the stake.
The Virginia-based information technology services company has a $17.48 billion market cap; its shares were trading around $62.42 on Friday with a price-earnings ratio of 9.71, a price-book ratio of 1.52 and a price-sales ratio of 0.79.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
DXC’s financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. Although the company has adequate interest coverage, the Altman Z-Score indicates it is at risk of going bankrupt due to a decline in revenue per share. While the operating margin is in decline, it still outperforms 71% of competitors. The company is also supported by good returns, a high Piotroski F-Score of 8, which suggests operating conditions are healthy, and a business predictability rank of one out of five stars. According to GuruFocus, stocks with this rank typically gain an average of 1.1% per year.
Of the gurus invested in DXC Technology, Larry Robbins (Trades, Portfolio) has the largest position with 1.71% of outstanding shares. Other guru shareholders include Lee Ainslie (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Wallace Weitz (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Leon Cooperman (Trades, Portfolio) and Jana Partners (Trades, Portfolio).
Charles Schwab
The guru picked up 4.3 million shares of Charles Schwab for an average price of $51.07 per share, dedicating 1.03% of the equity portfolio to the stake.
The bank and brokerage company, which is headquartered in San Francisco, has a market cap of $59.51 billion; its shares were trading around $44.07 on Friday with a price-earnings ratio of 20.03, a price-book ratio of 3.30 and a price-sales ratio of 6.32.
According to the Peter Lynch chart, the stock is overvalued.
Charles Schwab’s financial strength and profitability and growth were both rated 4 out of 10. GuruFocus warns the company has issued roughly $2.9 billion in new long-term debt over the last three years and says its assets are building at a faster rate than its revenue growth, which suggests it may be becoming less efficient. Despite these headwinds, the company has a net margin and return on equity that outperform industry peers. It is also supported by a one-star business predictability rank.
With 5.63% of outstanding shares, Dodge & Cox is the company’s largest guru shareholder. Primecap, Frank Sands (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Ron Baron (Trades, Portfolio), Glenn Greenberg (Trades, Portfolio), Lou Simpson (Trades, Portfolio), Pioneer, Ainslie and several other gurus also have positions in the stock.
Additional trades
During the quarter, Nygren also expanded his holdings of Flex Ltd. (FLEX, Financial), Delphi Technologies PLC (DLPH, Financial), Caterpillar Inc. (CAT, Financial), Gartner Inc. (IT, Financial), Cummins Inc. (CMI, Financial) and State Street Corp. (STT, Financial).
The guru’s $20.55 billion portfolio, which is composed of 58 stocks, is heavily invested in the financial services sector, followed by smaller positions in the technology and health care spaces. According to GuruFocus data, the fund slightly underperformed the S&P 500 Index in 2017 with a return of 21.14%. The index posted a 21.71% return.
Disclosure: No positions.
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