We have a look at value investor and guru Bill Nygren's stock holdings. Nygren runs several funds under the Oakmark Funds brand. His cumulative 10-year track record soundly beats the S&P 500. He earned returns of 74.5% to the S&P's 16.4%. Here are the highest yielding stocks in his portfolio:
Glaxo Smith Kline PLC (GSK): Nygren holds nearly 1.6 million shares of Glaxo. The pharmaceutical giant is currently trading at a 35.47 P/E ratio, and offers a $2.46 (6.40%) dividend. After 18 years in a partnership with Human Genome Sciences (HGSI), GSK finally has its first reward after the FDA approved a new lupus treatment discovered by the group. The group has several treatments for other conditions still in testing.
BristolMyers Squibb (BMY): Nygren holds 2.65 million shares of BristolMyers. This other pharmaceutical behemoth demonstrates resilience in its margins through inflationary quarters dating back to 1976. BMY has a market cap of $42.51B, and has a dividend yield of 5.00%. A new BMY drug, Ipilimumab, intended to treat melanoma and other tumors, is up for FDA marketing approval later this month. We think this is a great drug stock to consider for your golden years. Many people consider the drug as BMY’s most important developmental product. If approved, it would be a significant breakthrough as the first melanoma drug approved in 13 years. Experts are optimistic that it will receive approval.
Merck & Co. (MRK): Nygren holds 1.57 million shares of Merck. The company trades at 9.5 times EPS, 1.9 times book value per share, and 2.2 times sales per share. The respective industry averages are 13, 2.7, and 2.5, respectively.
The company produced a non-GAAP EPS of $3.42 in 2010. In 2011, Merck is targeting full year non-GAAP EPS in the range of $3.64 to $3.76, which would be an increase of 6.4% to 9.9%.
H.J. Heinz (HNZ): Nygren holds 400,000 shares of Heinz stock. This consumables company relies heavily on its brand-name to outdistance peers in the generic products categories in which it competes. Heinz has successfully driven earnings growth and maintained margins during quarterly bouts of inflation dating back to 1985. Shares in this $15 billion company trade for 48.86 apiece and yield 3.7%. It has trended off its high in recent months, so it might be worth watching for an inflection point. Commodity costs will create headwinds, but this is true across the consumer sector. Like some of its behemoth peers its brand recognition and economies of scale along with marketing savvy position it to withstand these headwinds better than some smaller, less organized groups.
Unilever (UL): Unilever is a new buy for Nygren. He purchased 950,000 shares in the latest quarter. Renowned for the flexibility of adjusting to new markets, this global diversified consumer stock holds dominant positions throughout the world. Coupling a nearly 4% dividend with an EPS projection of over 25% this year, Unilever is a solid blue chip investment. Whether it's in your shampoo bottle or spreading detergent product through innovative and successful distribution channels in India, this is a global power staying power. Yields 3.8%.
Johnson & Johnson (JNJ): Nygren holds 980,000 shares onf JNJ. Johnson & Johnson has increased its dividend for 48 straight years, ranking it 13th among active dividend increase streaks. True, there’s uncertainty today about pharmaceuticals, but this has been a long-time favorite for income investors. For the past three years, investors have seen dividend increase announcements on the last or second to last Thursday of April. Past increases have been in the 6%-10% range, and with JNJ paying out less than half its profits, expect this trend to continue. A modest increase to $0.58 a quarter, from $0.54, seems reasonable: a 7% increase in yield on cost.
Intel Corp (INTC): Nygren holds 3.85 million shares in his funds. It is also one of his larger holdings at 2.28% of the portfolio. Intel has a P/E of 10.4, P/B of 2.3, and P/S of 2.7. The industry averages are 18.3, 2.7, and 2.6, respectively. From 2001 to 2007, Intel’s price to sales multiples were 8.1, 3.9, 7.0, 4.4, 4.0, 3.4, and 4.1, respectively.
Using Intel’s Q1 estimates of $11.5 billion in revenues and several expense deductions, EPS is projected to come in at $0.51. This implies an EPS of $2.10 for the year thru Q1 2011. Twelve months through Q1 2010, EPS was only $1.09. Q1 2011 earnings are set for release on April 19.
Diageo PLC (DEO): Nygren holds 896,000 shares in his funds. With brands including Johnnie Walker, Jose Cuervo, Guinness and Smirnoff, you’re sure to find a taste to suit you. It holds nearly $4 billion in cash, which facilitates a situation in which it needs to acquire its way to new market share. Looking out over the next five years, analysts are predicting a steady 10% growth in EPS. With massive brand appeal making the competition sweat and healthy dividends, this stock is a good choice for your home bar and perhaps your stock portfolio. Yields 3.2%.
McDonald's (MCD): Nygren holds 769,000 shares in his funds. MCD has a P/E of 16.8, P/B of 5.5, and P/S of 3.4. The respective industry averages are 21, 5.5, and 1.9. The P/S multiples since 2001 have been steadily rising.
In 2010, EPS grew by 11.44% to $4.58, after rising by 9.31% in 2009. In 2011, analysts expect EPS to come in between $4.91 and $5.16, which would be an increase of between 7.2% and 12.6%. Q1 2011 earnings are scheduled for release on April 21.
Wal-Mart Stores (WMT): Nygren holds 1.27 million shares in his funds. Wal-Mart has a P/E of 12.5, P/B of 2.9, P/S of 0.5. The respective industry averages are 14.7, 2.9, and 0.5. From 2003 to 2007, the P/S multiples were between 0.5 and 0.9.
In 2010, EPS grew by 12.1% to $4.18, after +9.14% in 2009. The company expects Q1 2011 EPS to be between $0.91 and $0.96, versus last year's EPS of $0.87. For the full year ending in January 2012, the company expects EPS to be in the range of $4.35 to $4.50. The next earnings release occurs on May 17.
Northrop Grumman (NOC): Nygren holds 860,000 shares in his funds. While the specter of defense cuts is on the horizon, Northrop has exhibited good cost control. Recently, the company won a $2.5 billion Army contract for general operations planning and training. The company has been good at identifying low-cost basis solutions for the Army, including bringing R&D projects up to speed by leveraging its existing intellectual property.
Home Depot (HD): Nygren holds 2.1 million shares in his funds. It trades at a P/E of 18.4, P/B of 3.2, and P/S of 0.9. The industry averages are 17.5, 2.1, and 0.7, respectively. From 2001 to 2007, HD shares traded at P/S of 2.4, 1.0, 1.3, 1.3, 1.1, 0.9, and 0.6, respectively.
In FY 2010 through January 2011, the company posted EPS of $2.01, which was an increase of 29.7%, after increasing by 17.16% in FY 2009. The company expects EPS from continuing operations to be up 9.5% to $2.20, excluding the impact of future share repurchases. Using excess cash, the company intends to repurchase approximately $2.5 billion of outstanding shares throughout the year. Q1 2011 earnings come out on May 17. Going forward, we estimate sales growth of 5%, comparable to Lowe’s (LOW), with operating margins reaching 10% after several years relative to last year’s 7.3% as the company capitalizes on a revamped supply chain, merchandising and pricing automation. Shares are worth $45 apiece.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
