Famed value investor Bill Nygren, Oakmark portfolio manager, joins ‘Fast Money Halftime Report’ to discuss General Electric, bank stocks, market sentiment and why he’s buying Constellation Brands.
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Famed Value Investor Bill Nygren On His New Stock Picks
Q1 hedge fund letters, conference, scoops etc
Transcript
We've been a volatile stock. This year it's been a good performer for us so far thousand nineteen. And we like the steps Larry Culp is taking as CEO to lessen the debt on the balance sheet. Make this a less risky business. We very much like the aviation and health care businesses and we think when you look at it piece by piece value you get to a number that's meaningfully higher than the nine dollars that stock's trading at when it had its big jump. Were you tempted to bail. No.
Not even a little bit. Not even a little bit. I got you.
Just remember we only we 2 percent of the portfolio in GE. We've got like 30 percent in financials.
I understand so let's talk about them. Are you feeling better about the group.
We I don't think we ever really felt worse about the group. So yeah we feel great about the group. These these companies are fundamentally performing really well. They sell at eight to 10 times earnings a little bit more than book value. I heard somebody on one of the CNBC shows a few days ago say they wouldn't touch a bank because to them the businesses look a lot like utilities. Utilities today sell at twice book 20 times earnings. Please bring that pricing on for our bank stocks. Yeah. And the banks are better businesses. They're structurally advantaged. The big banks can gain customers. The costs for a fraud protection for mobile apps for compliance they don't scale up with size. And it just makes the big banks able to take customers away from smaller banks. So the banks have got good organic growth in addition to great cash flow generation. Yeah. Although PEs are half the market.
What about rates though. I mean it's the obvious. It's the obvious response I understand. But it is a significant overhang to this group as long as rates remain low. Can bank stocks perform.
Well with rates at 2 percent. Right now these companies are earning 12 to 15 percent on tangible equity and the market's pricing that at 8 to 10 times earnings. I think if rates move higher it will obviously be a positive for the group. But they don't need that to be cheap.
Bill it's Joe I agree with you as far as your allocation towards financials but I've heard a few people suggest in the last couple of weeks that potentially financials could be exposed to the kind of political rhetoric which has pulled down the health care industry. The conversation surrounding transaction tax further regulation for the financial sector. Are you worried about that political headwind.
Well I think for any investment it's worth thinking about what unintended consequences of regulation could be. But when you're your entry price for these stocks is about book value. I just don't see the downside mate. Maybe that takes away a little of the upside. If if there are bad consequences from regulation but I don't see that creating downside when you're buying these stocks around book.
Let's talk about another stock and one that you've added recently. And that's Constellation Brands. Tell our viewers why you like it.
OK. Constellation went down quite a bit after they made the large investment in Canada. They put something like. 20 some dollars a share into that which at market today is worth in the mid 30s. That's not generating any income for them right now in fact losses. Yet without subtracting that from the Constellation price. Constellation is priced at a multiple consistent with other consumer product companies that aren't growing and Constellation's big products are its Mexican beer franchise Corona Modelo and Pacifica. I know I know all of them well. And hopefully you'll be know a Modelo and Pacific so even better as they get better distribution off premise. We think the growth that has been going mid to upper single digit there can continue and that eventually both the premium growth needs to be reflected in the multiple and also the canopy investment needs to be reflected.
I have to have to run but quickly S&P Global another one that you like. Tell us why please.
Historically a 20 percent grower great value for their consumers. A bond issue repays a basis point a year saves 30 basis points by having a rating the rest of their ink. That's about half the income the other half comes from proprietary data capital light business model good organic growth great cash flow generation and sells it 20 times earnings same multiple as a utility it's silly.
