Bill Nygren, The Oakmark Investor Fund portfolio manager, joins the ‘Fast Money Halftime Report’ to discuss his new stock buys Netflix, Hilton and eBay.
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Bill Nygren’s Top Stock Picks: Netflix, Hilton And eBay
Q3 hedge fund letters, conference, scoops etc
Transcript
Obviously our dream would be that investors give us a lot more money to invest when stocks get cheap. Unfortunately that's not the reality. So it's not like we had a lot of new capital to invest. So rather than just being out taking advantage of the sale we were selling names that had held up well to put capital into names that had fallen a lot. Probably not a big surprise that half our portfolio now is invested in the sectors that ETF flows were the most negative in in the fourth quarter financials industrials consumer durables and energy. There are a lot of names in the financial space that single digit leads that are showing modest top line growth modest earnings growth very significant share reductions and should be able to continue upper single digit EPS growth.
Dividend yields around 3 percent or so and you pay seven or eight times earnings for those today. I think that's very very attractive.
You know when I'm looking at some of the stuff that you sold you've got United Technology or United Health you sold Medtronic, Nestle I kind of get those but you add a new position into your Select Fund in eBay and even Netflix which would only be I guess surprising Bill if we didn't talk about you as a value investor. eBay as a value stock.
Netflix look at where eBay is price today less than a market multiple on current earnings. It's basically an online version of an off price retailer like T.J. Maxx or Ross Stores sells at a very significant multiple discount to those companies. And that's before you look at the potential increase in earnings they can get as they move away from the PayPal contract payments as they better optimize their advertising on the site. We think this is a company that over the next couple of years could show very significant earnings gains from a level where it's already below a market multiple. You look at Netflix and I know there's been an ongoing debate about what the PE on Netflix is and whether or not. It's as low as it should be. We don't think gap accounting does a reasonable job of measuring Netflix value and value creation at all.
We look at a transaction that happened where AT&T purchased Time Warner at a price that only made sense if they thought HBO subscribers were worth something like a thousand dollars a subscriber. If you put that number on netflix it's currently selling at less than HBO sold out on a per subscriber basis. But subs are growing 20 percent a year instead of flatlining. Our thesis on Netflix from the beginning was that they were significantly underpricing their product in exchange for achieving supernormal growth in subscribers. An economic tradeoff we thought was well worthwhile and their move today to increase prices again I think shows what a value Netflix is to the customer. And we don't think they'll lose subscribers or even slow their subscriber growth despite having somewhat of a meaningful price increase here.
Hey that's a great. It's obvious that this starts with this former because of that. Hey Bill. Stephanie and I talk a lot. Step like just the right foot for me. And we talk about you take your life in your hands when you buy Foyle's. You've been buying. Halliburton and then a stock at my chaplet Chesson's because it's so cheap. Anadarko are you taking your life in your hands by whites.
Not intentionally but looking backwards it certainly has felt that way. Our our belief is that for the energy companies to produce as much energy as a growing worldwide economy is going to demand they simply need a higher price than the current 50 dollars a barrel. Something more in the upper 60s maybe 70 dollars a barrel level and at current prices we we think we're basically getting that option on higher long term oil prices for free. A company like Anadarko that we've had a position in and increased significantly recently a very significant share repurchase or that's something that's new for the oil and gas industry. Normally the industry has had an appetite to reinvest any dollar of capital that they could in trying to find more oil. And I think Anadarko is sending a very strong signal when they say oil's cheaper by buying back their stock than it is in the real world. We think that's a very positive signal.
