Chicago-based Harris Associates LP, manager of the Oakmark Funds, had $64.5 billion in assets as of year-end 2011, including over $65 billion in 13-F assets per its latest Q1 2012 filing with the SEC, an increase from the $55 billion we reported earlier at the end of the prior quarter. 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. Nygren was profiled as one of four "World's Greatest Investors" by SmartMoney magazine in their cover story published 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 $42 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 about 220 positions. Approximately two-thirds of its holdings are in large caps, and most of the remaining one-third is in mid-caps.
We analyzed Harris Associates' Q1 13-F to determine its highest conviction bets, selecting the largest buys and sells in size, where the buy/sell is also a significant proportion of its prior quarter position in that company. Based on that analysis, the following are two undervalued growth companies among its bullish positions in Q1 2012 (see table below):
Tiffany & Co. (TIF): TIF is engaged in the design, manufacture and retail of fine jewelry worldwide. Harris Associates added $177 million to its $47 million prior quarter position. Other major institutional investors with large bullish bets on TIF in Q1 include Ruane Cunniff & Goldfarb adding a new 2.1 million share position, and JPMorgan Chase & Co. adding 1.6 million shares to its 1.4 million share prior quarter position. Overall, institutions sold a net 3.8 million shares in Q1, buying/adding 24.0 million shares and cutting/decreasing 27.8 million shares.
TIF shares plunged earlier Thursday after it released its Q1 (April) before the market-open, with revenue coming in-line but missing analyst earnings estimates (64 cents vs. 70 cents), and lowering its earnings guidance for FY 2013 ($3.70-$3.80 vs. $3.99). Its shares closed the day at $57.59, down 6.8%, falling to 52-week lows, trading at 12-13 forward P/E and 3.3 P/B compared to averages of 14.0 and 2.0 for its peers in the jewelry retail group, while earnings are projected to rise at a strong 12.3% annual rate from $3.60 in 2012 to $4.54 in 2014 (FY ending January). We can reasonably expect that these estimates will come down after today's disappointing earnings report.
Illinois Tool Works Inc. (ITW): ITW is a manufacturer of plastic and metal fasteners and fastening tools for the construction, automotive, and appliance markets. Harris Associates added $99 million to its $616 million prior quarter position. Other major institutional investors with large bullish bets on ITW in Q1 include mutual fund powerhouse Fidelity Investments adding 7.9 million shares to its 0.2 million share prior quarter position, and Bank of America, with $169 billion in 13-F assets, adding 2.1 million shares to its 2.9 million share prior quarter position. Overall, institutions sold a net 6.4 million shares in Q1, buying/adding 24.7 million shares and cutting/decreasing 31.1 million shares.
ITW reported its Q1 (March) a month ago, on April 24th, with revenues coming in-line and beating analyst earnings estimates (97 cents vs. 95 cents), and guiding Q2 earnings higher ($1.08-$1.16 vs. $1.07). Its shares have flat-lined since the report, given the mayhem in May, and currently trade at 11-12 forward P/E and 2.6 P/B compared with averages of 13.5 and 3.0 for its peers in the general industrial machinery group, while earnings are projected to rise at a strong 12.3% annual rate from $3.74 in 2011 to $4.72 in 2013.
The following are additional companies that Harris Associates is bullish about, accumulating shares in them in Q1 2012 (see table below):
- Parker Hannifin Corp. (PH), that is a leading worldwide manufacturer of motion and control technologies for a wide variety of commercial, mobile, industrial and aerospace markets, in which it added $220 million in Q1 to its $27 million prior quarter position;
- Delphi Automotive Plc (DLPH), that is a manufacturer of vehicle components, powertrain, safety and thermal technology solutions for automotive and commercial vehicle markets worldwide, in which it added $202 million in Q1 to its $23 million prior quarter position;
- Encana (ECA), that is engaged in oil and gas exploration and production in British Columbia, Alberta, Offshore Nova Scotia, Wyoming, Colorado, Louisiana and Texas, in which it added $151 million in Q1 to its $292 million prior quarter position; and
- Staples Inc. (SPLS), that is an office products company that sells various office supplies and services, business machines, computers, and office furniture, in which it added a new $105 million position in Q1.
The following are Harris Associates' bearish picks, based on its Q1 selling activity (see table below):
- Sara Lee Corp. (SLE), that is a manufacturer of meats, coffee, teas, household products and baked goods for consumers worldwide, in which it cut $324 million in Q1 from its $333 million prior quarter position;
- Ultra Petroleum Corp. (UPL), that is an independent, exploration and production company focused on developing its long life, tight-gas sand resource play in the Green River Basin in Wyoming, in which it cut $155 million in Q1 from its $206 million prior quarter position;
- Concho Resources Inc. (CXO), an independent oil & natural gas company, engaged in the acquisition, development and exploration of oil and natural gas in southeast New Mexico and west Texas, in which it cut $154 million in Q1 from its $330 million prior quarter position;
- Range Resources Corp. (RRC), that is engaged in the exploration and production of oil and natural gas in the south-western and Appalachian regions of the U.S., in which it cut $139 million in Q1 from its $328 million prior quarter position; and
- Corning Inc. (GLW), a manufacturer of glass substrates for LCDs, optical fiber and cables for communications and ceramic pollution control products, with Its LCDs used in high-performance displays for TVs and smart phones, in which it cut out completely its $73 million prior quarter position.
Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.