Bill Nygren manages the Oakmark Portfolio on a value investing basis. Here I look at some of his latest buys:
Google Inc (NASDAQ:GOOG): Shares are trading around $505 at the time of writing, as against their 52-week trading range of $473.02 to $642.96. At this share price the company’s market capitalization is $162.96 billion. Earnings per share last year were $27.72, and the shares trade on a price to earnings multiple of 18.21. The company lost $4.50 last year. It paid a dividend to shareholders of $0.385, a yield of 0.50%.
Google, a leading provider of search engine and internet facilitation services, has recently entered the social networking arena with its Google Plus offering. This is contrary to its rival AOL Inc (NYSE:AOL), which has taken the direction of news and media offering when it bought Huffington Post. The market for social networking is likely to grow, even though Facebook is having problems of its own, as the internet expands to countries such as China.
While AOL’s move into news dissemination is a good one, Google Plus can be use to attract the same followers, and did not cost the company more than internal development. Google’s operating margin of 33.62% gives it far more leeway for further research and development costs, when compared to AOL’s rather paltry 8.69% operating margin. Another competitor, Yahoo Inc. (NASDAQ:YHOO) has a similar gross margin to Google, at around 64%, but suffers markedly at the operating level (15.16%). Google is a well run company, with go ahead products, and one which I think Bill Nygren has been wise to buy 60,000 shares, a new holding, in the second quarter of this year.
The Walt Disney Company (NYSE:DIS): Shares are trading around $31 at the time of writing, as against their 52-week trading range of $28.19 to $44.34. At the current market price, the company is capitalized at $57.78 billion. Earnings per share for the last year were $2.36, placing the shares on a price to earnings ratio of 13.20. It paid a dividend of $0.40 (a yield of 1.30%). Nygren added to his holding in the second quarter of this year, and now holds 1,450,000 shares.
With economic growth slowing, worldwide as well as here in the United States, the revenue stream from advertising sales is likely to decrease. Media companies such as Disney, News Corp. (NASDAQ:NWS) and Time Warner (NYSE:TWX) will feel the pinch. While Time Warner and News Corp are more heavily reliant on such sales, Disney can fall back on its multi-generational appeal of its other businesses, such as theme parks, and retail. Of the three companies, Walt Disney has the greatest chance of performing best.
Encana Corp (NYSE:ECA): Shares are trading at around $19 at the time of writing, as against their 52-week trading range of $17.64 to $35.22. The market is capitalized at $13.97 billion. Earnings per share for the last year were $0.98, placing the shares on a price to earnings ratio of 19.37. It paid a dividend last year of $0.81, a yield of 4.30%. Nygren added to his holding in the second quarter of this year, and now owns 1,890,000 shares.
Encana operates in the natural gas and liquified gas arena, and like many companies of its type, relies heavily on sales for industrial use. These are looking increasingly fragile as the economy turns south. With operating margins of only a shade over 10%, its profitability could come under attack from any protracted downturn. Chesapeake Energy Corporation is in a similar position, with operating margins of around 18%. The best buy in this sector, with good management preserving an operating margin of 48.67% seems to be at Apache Corp (NYSE:APA).
Baxter International Inc (NYSE:BAX): Shares are trading around $55.00 at the time of writing, as against their 52-week trading range of $47.96 to $62.50. At the current market price, the company is capitalized at $31.11 billion. Earnings per share for the last fiscal year were $3.67, putting the shares on a price to earnings ratio of 14.92. It paid a dividend last year of $1.24 (yielding 2.30%). Nygren now owns 1,000,000 shares.
Bioscience companies are notoriously difficult to understand and value: so much of their potential is dictated by research and development, and costs are taken ahead of profits. However, this is where Baxter differentiates from others. It supplies medical products to a variety of customers: hospitals, clinical and medical research facilities, and nursing homes amongst others. Its earnings, therefore, are not subject to wild fluctuation. Perhaps this is why its operating margin, at 23.42%, is so much better than the sector average of 6.25%. With healthcare one of the more prolific sectors of the economy, despite government cuts, this is a stock that is likely to continue to pay a good dividend to its shareholders. A good buy by Nygren.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.