Bill Nygren (Trades, Portfolio) brands himself very much as a value investor. In evaluating investments, Nygren looks at the price versus his estimate of intrinsic business value. But, where other value investors often shun growth stocks, Nygren doesn't shy away from investing in Alphabet (GOOG, Financial)(GOOGL, Financial) and Netflix (NFLX, Financial), even though these have asset-light balance sheets and high growth rates. Free cash flow and intelligent capital allocation also matter a great deal to Nygren.
Nygren appeared on CNBC on April 26 and shared four investment ideas, summarized below.
General Electric
Nygren likes the steps General Electric (GE, Financial) CEO Larry Culp is taking to decrease the debt on the company's balance sheet. He also appreciates the aviation and health care businesses within GE. As a sum-of-the-parts investment, it is meaningfully more valuable than $9 a share. He hasn't been tempted to sell when it jumped over $10 for a period.
Banks
Nygren said he has around 30% of his portfolio in financials. He loves the banks, which sell at 8 to 10x earnings and near book value. The banks are about half the price of utilities, and they are better businesses. Large banks have a scale advantage. The three banks Nygren ownsthe most of are Citigroup (C, Financial), Bank of America (BAC, Financial) and Wells Fargo (WFC, Financial). If rates move higher, that is positive for the group, but they don't need it to be cheap. Political risk may take away a bit of the upside, but it won't hurt the downside as they are trading at book value.
Constellation Brands
Constellation (STZ, Financial) stock declined when the company invested in Canopy (CGC, Financial). Nygren bought in at $20 per share. It has since risen to $30 per share. Without considering that investment, Constellation is trading at multiples of no-growth consumer brands. Its main brands are Corona, Modello and Pacifico. Distribution of Modello and Pacifico may improve further.
S&P Global
S&P Global (SPGI, Financial) gives out ratings for bonds and sells proprietary data sets. Historically, it has grown at 20% per year. It saves its customers 3x as much as it charges and has a capital-light business model with great cash flow generation. It trades at only 20x earnings, which is the same multiple utilities trade at.
Disclosure: No positions.
Read more here:Â
Daniel Loeb's Lessons on Corporate GovernanceÂ
Bill Miller: Stocks Will Keep Going UpÂ
2 Stock Picks by the Legendary Value Investor Joel GreenblattÂ
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
