Chicago-based Harris Associates LP, manager of the Oakmark Funds, had $64.5 billion in assets as of year-end 2011, including over $55 billion in 13-F assets per its latest filing with the SEC last Thursday, on February 9th. The firm is led by Robert Levy, and includes such luminaries as Bill Nygren, who is portfolio manager for The Oakmark Fund, The Oakmark Select Fund, and the Oakmark Global Select Fund. Mr. Nygren was profiled as one of four "World's Greatest Investors" by SmartMoney magazine in their cover story on July 12th of last year. Oakmark offers seven mutual funds, four of which are rated gold, two at silver and one at bronze by Morningstar, and together the seven funds account for about $40 billion in assets, or almost two-thirds of Harris's assets under management.
Harris Associates manages money for individuals via the much-heralded Oakmark Funds, and they also serve Institutions and high net-worth individuals via separately managed accounts. Their portfolio is moderately diversified, including over 220 positions. Approximately two-thirds of its holdings are in large-caps, and most of the remaining one-third is in mid-caps. Its portfolio turnover is 10% implying an average holding period of ten years.
The following are Harris's major buys in Q4 based on that analysis, that are also trading under-valued compared to the peers in their group (see Table):
Oracle Corp. (NYSE:ORCL): ORCL develops database and middleware software and business application software and hardware systems for enterprises. Harris added $77 million in Q4 to its $431 million prior quarter position. ORCL has been through an eventful couple of months with its shares taking a nose-dive in mid-December after its Q2 (November) came up short, missing on both analyst revenue and earnings estimates, prompting many analysts to downgrade the stock and slash price targets.
While the company blamed the weakness on an increase in last-minute approval for large deals, as well as a chip transition for its server business, the concern is that ORCL may be lagging in product strength and could head down to Microsoft-like valuations in the high single digits. Currently, ORCL trades at 10-11 forward P/E and 3.2 P/B compared to averages of 38.9 and 4.5, respectively, for its peers in the computer software group, while earnings are projected to increase at a modest 7.6% annual rate from $2.22 in 2011 to $2.57 in 2013.
Patterson-UTI Energy Inc. (NASDAQ:PTEN): PTEN provides onshore contract drilling services to oil and natural gas operators in the U.S. and western Canada. Harris added $53 million in Q4 to its $49 million prior quarter position. PTEN just reported a disappointing Q4 two weeks ago, on February 2nd, with earnings missing estimates (61c v/s 63c); the stock currently trades at a discount at 7-8 forward P/E and 1.1 P/B, compared to averages of 13.6 and 1.4 for its peers in the oil and gas drilling group.
Newfield Exploration Co. (NYSE:NFX): NFX is an independent oil & gas company engaged in the exploration and development of crude oil and natural gas properties in the U.S., Malaysia and China. Harris added $38 million in Q4 to its $86 million prior quarter position. NFX shares have held up quite well after a disastrous Q3 report almost three months ago; shares have recovered and basically flat-lined after the initial gap-down, and currently trade at 8-9 forward P/E and 1.4 P/B compared to averages of 15.2 and 5.2 for its peers in the oil & gas exploration & production group. The company is on tap to release its Q4 early next week, on Wednesday after the market closes.
Ultra Petroleum Corp. (NYSE:UPL): UPL is an independent, exploration and production company focused on developing its long life, tight-gas sand resource play in the Green River Basin in WY. Harris added $32 million in Q4 to its $243 million prior quarter position. The company is expected to release its Q4 today morning, before the market opens; its shares currently trade at a discount 13-14 forward P/E and 2.5 P/B compared to averages of 15.2 and 5.2 for its peers in the oil & gas exploration & production group.
Delphi Automotive Plc (NYSE:DLPH): DLPH manufactures vehicle components, powertrain, safety and thermal technology solutions for automotive and commercial vehicle markets worldwide. Harris added a new $24 million position in Q4. DLPH has been a strong performer, rising about 50% from its $20 IPO price about three months ago. The company recently released a stellar Q4, beating estimates and guiding FY earnings higher; the stock still trades at a reasonable 7 forward P/E and 5.6 P/B compared to averages of 8.7 and 2.7 for its peers in the auto/truck OEM group, while earnings are projected to grow at a strong 11.9% annual rate from $3.33 in 2011 to $4.17 in 2013.
Other major buys by Harris in Q4 that are not under-valued based on a comparison to their peers, at least based on the typical earnings measure, include:
- Encana Corp. (NYSE:ECA), engaged in oil and gas exploration and production in British Columbia, Alberta, Offshore Nova Scotia, WY, CO, LA and TX, in which it added $221 million to its $55 million prior quarter position; and
- UnitedHealth Group Inc. (NYSE:UNH) a diversified health and well-being company, serving more than 70 million Americans, in which it added $38 million to its $608 million prior quarter position.
Other select Stocks that Harris is most bearish on based on its moves in Q4 (see Table) include:
- Transocean Ltd. (NYSE:RIG), a provider of offshore contract drilling for oil and gas wells worldwide, in which it cut out completely its $94 million prior quarter position;
- Williams Companies (NYSE:WMB), engaged in the exploration, production, gathering, processing and transportation of natural gas mainly in the U.S., in which it cut $132 million from its $139 million prior quarter position;
- Sara Lee Corp. (SLE), a manufacturer of meats, coffee, teas, household products and baked goods for consumers worldwide, in which it cut $245 million from its $571 million prior quarter position;
- Allstate Corp. (NYSE:ALL), a provider of personal property, casualty, life insurance and retirement and other investment products, mainly in the U.S., in which it cut $97 million from its $199 million prior quarter position;
- medical products and devices company Baxter International Inc. (NYSE:BAX), in which it cut $132 million from its $443 million prior quarter position; and
- Boston Scientific Corp. (NYSE:BSX), a developer of medical devices used in cardiology, endoscopy, oncology, neuromodulation and other interventional procedures, in which it cut $91 million from its $365 million prior quarter position.
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