David Herro (Trades, Portfolio), manager of Harris Associates’ Oakmark International Fund, disclosed two new holdings in his fourth-quarter 2018 portfolio, which was released last week.
The guru, who also manages the Chicago-based firm’s International Small Cap and Global Select funds, looks for value opportunities in foreign mid- and large-cap companies that are trading at a significant discount to his estimate of intrinsic value. His goal is to generate long-term capital appreciation by patiently waiting for the gap between the stock price and intrinsic value to close.
Based on these criteria, Herro established positions in Naver Corp. (XKRX:035420, Financial) and Ctrip.com International Ltd. (CTRP, Financial) during the quarter.
Naver
Herro invested in 3.3 million shares of Naver for an average price of 123,144 won ($108.94) per share, allocating 1.18% of the equity portfolio to the stake.
The South Korean company, which operates a search engine and provides other internet content services, has a market cap of 19.2 trillion won; its shares closed at 132,000 won on Monday with a price-earnings ratio of 29.75, a price-book ratio of 3.68 and a price-sales ratio of 3.45.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
Naver’s financial strength and profitability and growth were both rated 8 out of 10 by GuruFocus. Despite the company issuing 438.1 billion won in new long-term debt over the last three years, it is at a manageable level due to adequate interest coverage. In addition, the Altman Z-Score of 4.97 indicates the company is fiscally healthy.
Although the operating margin is in decline, it still outperforms 88% of competitors. Naver is also supported by strong returns that outperform at least 80% of industry peers and a moderate Piotroski F-Score of 4, which suggests operations are stable. The company also has a business predictability rank of one out of five stars, which is on watch as a result of assets building at a faster rate than revenue, suggesting it is becoming less efficient. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per year.
With his purchase of 2.25% of outstanding shares, Herro became Naver’s largest guru shareholder. The Matthews Pacific Tiger Fund (Trades, Portfolio) and Steven Romick (Trades, Portfolio) also own the stock.
Ctrip.com International
The investor picked up 1.18 million shares of Ctrip.com for an average price of $30.24 per share, dedicating 0.11% of the equity portfolio to the stake.
The Chinese online travel agency, which is based in Shanghai, has a $23.18 billion market cap; its shares were trading around $41.91 on Tuesday with a price-earnings ratio of 155.22, a price-book ratio of 1.82 and a price-sales ratio of 5.23.
According to the Peter Lynch chart, the stock is overvalued.
As a result of poor interest coverage, GuruFocus rated Ctrip.com’s financial strength 5 out of 10. In addition, the Altman Z-Score of 1.43 warns the company is at risk of going bankrupt.
The travel agency’s profitability and growth fared a bit better, scoring a 7 out of 10 rating. While its margins outperform competitors, assets are growing at a faster rate than revenue, which suggests Ctrip may be becoming less efficient. The company also has a low Piotroski F-Score of 3, which indicates a poor operating environment, and its one-star business predictability rank is on watch.
Of the gurus invested in Ctrip, Ken Fisher (Trades, Portfolio) has the largest position with 1.89% of outstanding shares. Other top guru shareholders are Frank Sands (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Steven Cohen (Trades, Portfolio), Chris Davis (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio), Ron Baron (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Ray Dalio (Trades, Portfolio).
Additional trades
During the quarter, Herro also added to a number of holdings, including Thyssenkrupp AG (XTER:TKA, Financial), Ferguson PLC (LSE:FERG, Financial), Ashtead Group PLC (LSE:AHT, Financial), Ryanair Holdings PLC (RYAAY, Financial) and Baidu Inc. (BIDU), among others.
The guru’s $30.41 billion equity portfolio, which is composed of 62 stocks, is heavily invested in the financial services and consumer cyclical sectors. According to its fact sheet, the Oakmark International Fund posted a -23.43% return in 2018, underperforming the MSCI World ex. U.S. Index’s return of -14.09%.
Disclosure: No positions.
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