David Herro (Trades, Portfolio), co-manager of the Oakmark International Fund, disclosed this week his fund's top five buys for the second quarter included new holdings in Essilorluxottica (XPAR:EL) and The Swatch Group AG (XSWX:UHR). The fund also increased its bets on Glencore PLC (LSE:GLEN), Naver Corp. (XKRX:035420) and Intesa Sanpaolo (MIL:ISP).
Herro and co-manager Michael Manelli seek companies that not only are trading at a significant discount to intrinsic value, but also have good business quality and potential to increase shareholder value. The managers said in their quarterly letter that the Oakmark International Fund returned an average of 9.2% per year since its September 1992 inception, outperforming the MSCI World ex. U.S. index's average return of 5.9% per year during the same period. Despite this, the fund slightly underperformed the benchmark during the June quarter as weak performance in Ryanair Holdings PLC (NASDAQ:RYAAY) offset a strong gain in WPP PLC (NYSE:WPP).
As of quarter-end, Oakmark International's $31.75 billion equity portfolio contains 62 stocks, with high exposure to the financial services, consumer cyclical and industrial sectors. The three sectors represent 25.17%, 24.73% and 22.43% of the equity portfolio.
The fund purchased 2.15 million shares of Essilorluxottica, giving the stake 0.88% weight in the equity portfolio. Shares averaged 105.93 euros ($117.43) during the quarter.
The French medical instruments and equipment company designs, manufactures and retails premium frames, sunglasses and optical lenses. GuruFocus ranks Essilorluxottica's financial strength 6.3 out of 10 on several moderately strong indicators, which include a Piotroski F-score of 6, an equity-to-asset ratio that outperforms 64.58% of global competitors and a debt-to-equity ratio that outperforms 72.56% of global competitors.
The Vanguard Health Care Fund (Trades, Portfolio) also has a holding in Essilorluxottica.
The Swatch Group
The fund purchased 603,000 shares of Swatch Group, giving the position 0.54% equity portfolio weight. Shares averaged 284.50 Swiss francs ($289.22) during the quarter.
The Switzerland-based company manufacturers luxury watches, including brands like Omega, Longines, Breguet, Tissot and Swatch. GuruFocus ranks Swatch Group's financial strength 8.4 out of 10 on several positive indicators, which include robust interest coverage, a strong Piotroski F-score of 8, a solid Altman Z-score of 6.86 and debt ratios that outperform over 91% of global peers. Despite this, Swatch's profitability ranks just 5 out of 10 as the company's three-year revenue growth rate of 0.10% underperforms 88.74% of global competitors, while operating margins are near a 10-year low of 10.66% despite outperforming 84.79% of global specialty retail companies.
The fund added 78,823,000 shares of Glencore, increasing the stake 34.28% and its equity portfolio 0.86%. Shares averaged 2.92 pounds ($3.58) during the quarter.
Glencore trades in markets for metals, minerals, energy products and agricultural goods. According to GuruFocus data, Glencore's operating margin is underperforming 87.50% of global competitors despite increasing approximately 11.90% per year on average over the past five years based on loglinear regression.
The fund added 2,051,000 shares of Naver, increasing the holding 50.49%. Shares averaged 117,056 won ($96.69) during the quarter.
The Korean internet platform offers a wide variety of services, including maps, news, dictionary, social networking and shopping. GuruFocus ranks Naver's financial strength 6.6 out of 10: Although the company has a strong Altman Z-score of 4.40, its debt ratios are underperforming over 54% of global competitors.
The fund added 85,867,000 shares of Intesa Sanpaolo, increasing the stake to 563,417,000 shares in the aggregate. Shares averaged 2.08 euros during the quarter.
The Italian banking group provides financial services in Central and Eastern Europe, the Middle East and North Africa. According to GuruFocus, Intesa Sanpaolo's cash-to-debt ratio and debt-to-equity ratios underperform over 78% of global competitors.
Disclosure: No positions.
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