Bill Nygren Adds 3 Stocks To Portfolio, Boosts T-Mobile Stake

Summary

• The investor established positions in Willis Towers Watson, BorgWarner and Take-Two Interactive.
• He also increased his T-Mobile stake.
• Nygren curbed his investment in Bank of America.

Oakmark Fund manager Bill Nygren (Trades, Portfolio) disclosed his fourth-quarter portfolio earlier this week.

To achieve long-term capital appreciation, the renowned guru, who also manages the Chicago-based firm’s Select and Global Select funds, usually invests in mid- and large-cap companies. When picking stocks, he looks for growing companies that have shareholder-oriented management teams. According to the fund’s fact sheet, he prefers to take a position when the stock is trading at a substantial discount to his estimate of intrinsic value, then waits for the gap between the two to close before selling.

In his letter for the three months ended Dec. 31, Nygren noted that while finance theory suggests stock markets are efficient, meaning that “every company’s price is the best estimate of its fair value every day,” Oakmark believes “something different.”

“While we concede that many stocks are priced close to fair value much of the time, it isn’t all stocks all the time,” he wrote. “Most market participants are not carefully calculating the present value of all future cash flows. They act on emotions. They often aren’t thinking about next month, much less next year. As a result, stocks prices don’t always match business value. We believe we can take advantage of that by forecasting further into the future and by unemotionally pursuing opportunities where other investors have overreacted.”

Keeping these considerations in mind, Nygren established three new positions during the quarter, added to 11 holdings and trimmed a slew of other existing investments. Notable trades included new positions in Willis Towers Watson PLC (WTW, Financial), BorgWarner Inc. (BWA, Financial) and Take-Two Interactive Software Inc. (TTWO, Financial), a boost to the T-Mobile US Inc. (TMUS, Financial) stake and a reduction to the Bank of America Corp. (BAC, Financial) holding.

Willis Towers Watson

The guru invested in 800,000 shares of Willis Towers Watson (WTW, Financial), allocating 1.11% of the equity portfolio to the holding. The stock traded for an average price of $236.58 per share during the quarter.

The London-based insurance brokerage company has a $26.07 billion market cap; its shares were trading around $220.94 on Tuesday with a price-earnings ratio of 6.67, a price-book ratio of 2.04 and a price-sales ratio of 2.98.

The GF Value Line suggests the stock is fairly valued currently based on historical ratios, past performance and future earnings projections.

In his quarterly commentary, Nygren noted that he believes the company “has an opportunity to create significant shareholder value” under its new CEO and reconstituted board of directors following its failed merger with Aon (AON, Financial).

GuruFocus rated Willis Towers Watson’s financial strength 6 out of 10. Although the company has sufficient interest coverage, the low Altman Z-Score of 1.62 warns it could be at risk of bankruptcy since revenue per share has declined recently. The return on invested capital also exceeds the weighted average cost of capital, meaning value is being created as the company grows.

The company’s profitability scored a 7 out of 10 rating, driven by operating margin expansion and strong returns on equity, assets and capital that top a majority of competitors. Willis Towers Watson also has a high Piotroski F-Score of 7 out of 9, meaning conditions are healthy, as well as a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return, on average, 1.1% annually.

Of the gurus invested in Willis Towers Watson, First Eagle Investment (Trades, Portfolio) has the largest stake with 3.88% of its outstanding shares. Barrow, Hanley, Mewhinney & Strauss, Seth Klarman (Trades, Portfolio) and David Abrams (Trades, Portfolio) also have significant positions in the stock.

BorgWarner

Nygren picked up 4 million shares of BorgWarner (BWA, Financial), dedicating 1.05% of the equity portfolio to the stake. During the quarter, shares traded for an average price of $45.64 each.

The automotive supplier, which is headquartered in Auburn Hills, Michigan, has a market cap of $9.31 billion; its shares were trading around $38.47 on Tuesday with a price-earnings ratio of 17.32, a price-book ratio of 1.34 and a price-sales ratio of 0.63.

According to the GF Value Line, the stock is modestly undervalued currently.

The guru wrote in his commentary that he has been impressed with the company’s management team for decades as they “successfully acquired and scaled fuel efficiency technologies for internal combustion engines.”

“We see strong parallels and underappreciated potential in the acquisitions the company has made over the past 5+ years in key electric vehicle technologies,” he wrote. “We believe the company is well-positioned to manufacture and integrate new propulsion systems and components to meet customer demands.”

BorgWarner’s financial strength was rated 6 out of 10 by GuruFocus. Despite the company issuing approximately $1.3 billion in new long-term debt over the past three years, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 2.47, however, indicates it is under some pressure since assets are building up at a faster rate than revenue is growing. Regardless, the ROIC slightly overshadows the WACC, indicating the company is creating value.

The company’s profitability fared better, scoring an 8 out of 10 rating. Although the operating margin is in decline, returns outperform over half of its industry peers. BorgWarner also has a moderate Piotroski F-Score of 6, indicating conditions are typical for a stable company. Consistent earnings and revenue growth has contributed to a three-star predictability rank, but a loss in operating income has resulted in it being on watch. GuruFocus says companies with this rank return an average of 8.2% annually.

With a 2.84% stake, Diamond Hill Capital (Trades, Portfolio) is the company’s largest guru shareholder. Jeremy Grantham (Trades, Portfolio), John Rogers (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Stott Black and Barrow, Hanley, Mewhinney & Strauss also have positions in BorgWarner.

Take-Two Interactive

The investor entered a 1 million-share stake in Take-Two Interactive (TTWO, Financial), giving it 1.04% space in the equity portfolio. The stock traded for an average per-share price of $174.42 during the quarter.

The New York-based video game publisher has an $18.45 billion market cap; its shares were trading around $158.73 on Tuesday with a price-earnings ratio of 35.44, a price-book ratio of 5.02 and a price-sales ratio of 5.46.

Based on the GF Value Line, the stock appears to be fairly valued currently.

Noting that the company has recently undertaken an “ambitious growth plan that has doubled the number of new games under development,” Nygren wrote in his commentary that while there will likely be near-term headwinds, the investments should pay off in the long term.

GuruFocus rated Take-Two’s financial strength 9 out of 10. While the company has a comfortable level of interest coverage, the high Altman Z-Score of 5.81 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC also eclipses the WACC, indicating value creation is occurring.

The company’s profitability also fared well with a 7 out of 10 rating on the back of an expanding operating margin and returns that beat over half of its competitors. Take-Two also has a moderate Piotroski F-Score of 4 and a one-star predictability rank even though revenue per share growth has slowed over the past 12 months.

Andreas Halvorsen (Trades, Portfolio) has the largest stake in Take-Two with a 1.04% stake. Other guru investors are PRIMECAP Management (Trades, Portfolio), Gabelli, Steven Cohen (Trades, Portfolio), Ron Baron (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Louis Moore Bacon (Trades, Portfolio), Greenblatt, Jones, Dalio and First Pacific Advisors (Trades, Portfolio).

T-Mobile

With an impact of 0.54% on the equity portfolio, Nygren increased his T-Mobile (TMUS, Financial) stake by 66.67%, buying 800,000 shares. During the quarter, the stock traded for an average price of $117.52 per share.

He now holds 2 million shares total, which account for 1.36% of the equity portfolio. GuruFocus data shows Nygren has gained an estimated 13% on the investment, which was established in the second quarter of 2020.

The telecommunication services company headquartered in Bellevue, Washington has a market cap of $152.85 billion; its shares were trading around $122.33 on Tuesday with a price-earnings ratio of 50.77, a price-book ratio of 2.22 and a price-sales ratio of 1.91.

The GF Value Line suggests the stock is fairly valued currently.

T-Mobile’s financial strength was rated 4 out of 10 by GuruFocus. In addition to poor interest coverage, the low Altman Z-Score of 1.13 warns the company could be at risk of bankruptcy since its assets are building up at a faster rate than revenue is growing. The WACC also surpasses the ROIC, so the company is struggling to create value.

The company’s profitability fared better, scoring a 7 out of 10 rating even though the operating margin is in decline and returns underperform around half of its industry peers. T-Mobile also has a moderate Piotroski F-Score of 4 and a one-star predictability rank.

Of the gurus invested in T-Mobile, Dodge & Cox has the largest stake with 1.32% of its outstanding shares. Halvorsen, Warren Buffett (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Lee Ainslie (Trades, Portfolio), David Tepper (Trades, Portfolio) and PRIMECAP also have significant positions in the stock.

Bank of America

Impacting the equity portfolio by -0.55%, the investor trimmed his holding in Bank of America (BAC, Financial) by 19.36%, selling 2.1 million shares. During the quarter, shares traded for an average price of $42.34 each.

He now holds 8.74 million shares total, giving it 2.28% space in the equity portfolio. Nygren has gained an estimated 151.38% on the long-held investment.

The Charlotte, North Carolina-based bank has a $341.64 billion market cap; its shares were trading around $42.34 on Tuesday with a price-earnings ratio of 11.9, a price-book ratio of 1.4 and a price-sales ratio of 4.05.

According to the GF Value Line, the stock is modestly overvalued currently.

GuruFocus rated Bank of America’s financial strength 4 out of 10. Despite issuing approximately $44.1 billion in new long-term debt over the past three years, it is still at a manageable level. Assets are building up at a faster rate than revenue is growing, however, indicating it may be becoming less efficient.

The bank’s profitability scored a 5 out of 10 rating on the back of margins and returns that outperform over half of its competitors. Bank of America also has a moderate Pitroski F-Score of 5 and a one-star predictability rank.

With 12.5% of Bank of America’s outstanding shares, Buffett is by far its largest guru shareholder. Other top guru investors include Dodge & Cox, PRIMECAP, Diamond Hill, Li Lu (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Simons’ firm and Chris Davis (Trades, Portfolio).

Additional trades and performance

During the quarter, Nygren also added to his holdings of Fiserv Inc. (FISV, Financial) and Intercontinental Exchange Inc. (ICE, Financial). Among the positions that saw reductions were S&P Global Inc. (SPGI, Financial), Gartner Inc. (IT, Financial), Comcast Corp. (CMCSA, Financial) and Netflix Inc. (NFLX, Financial), along with many others.

The Oakmark Fund’s $17.09 billion equity portfolio, which is composed of 54 stocks, is most heavily invested in the financial services sector.

GuruFocus data shows the fund returned 34.2% in 2021, outperforming the S&P 500’s 28.7% return.

Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com.