Value investor Bill Nygren (Trades, Portfolio) invests in companies at a deep discount to intrinsic value. He focuses on value, positive free cash flow, intelligent capital allocation and a high percentage of ownership. Nygren appeared on CNBC on May 16 and pitched two very out-of-favor sectors.
At Oakmark, they are trying to look beyond short-term newsflow and focus on fundamentals. Currently this is moving them to focus on two unrelated industries: banks and oil.
Banks
Nygren likes banks. Ally Financial (ALLY, Financial), Capital One (COF, Financial), Bank of America (BAC, Financial) and Citigroup (C) trade at 8x expected earnings. Historically, banks traded at two-thirds of market multiples. Currently, that would be 12x. Ally Financial should be over $40 instead of $30. Capital One is earning good margins. They are not seeing a big increase in delinquencies. At 8x earnings, they look good. These are tremendous values. If interest rates dip, that will hurt earnings, but Nygren sees no reason to expect that rates will stay as low as they are.
Oil
Nygren likes U.S. exploration and production companies. Oakmark owns much Anadarko (APC, Financial). He also owns Apache (APA, Financial). At 7x Ebitda, it would double, he said. It is not clear at all that there will be more deals like the one involving Anadarko Occidental (OXY, Financial). But with oil in the $60's, these companies are profitable. Nygren thinks that in the long term, oil needs to go higher to support global growth.
Portfolio
Both banks and energy are heavily represented in Nygren's portfolio. However, its largest position is Alphabet (GOOG, Financial)(GOOGL, Financial). He's also invested heavily into Netflix (NFLX, Financial). Here's GuruFocus' heatmap of the top positions:
Disclosure: no position.
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