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Oakmark's Bill Nygren Adds Humana, DXC Technology to Portfolio

Oakmark Fund manager Bill Nygren (Trades, Portfolio) disclosed two new positions when he released his third-quarter portfolio last week.

To achieve long-term capital appreciation, the guru, who also manages the Chicago-based firm's Select and Global Select funds, 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.


Based on these criteria, Nygren established holdings in Humana Inc. (NYSE:HUM) and DXC Technology Co. (NYSE:DXC) during the quarter.

Humana

The guru invested in 700,000 shares of Humana, dedicating 1.16% of the equity portfolio to the holding. The stock traded for an average price of $280.13 per share during the quarter.

The Louisville, Kentucky-based health insurance company has a $45.77 billion market cap; its shares were trading around $345.63 on Monday with a price-earnings ratio of 18.38, a price-book ratio of 3.94 and a price-sales ratio of 0.76.

In his third-quarter letter, Nygren noted that Humana's shares are currently trading at a discount despite its competitive advantages and strong growth outlook.

"The company's brand also resonates well in the marketplace and has helped drive double-digit annual membership growth over the past decade-well above the rest of the industry," he wrote. "Further, we believe Humana has a long runway ahead as it benefits from an aging population and continued conversion of the more than 60% of seniors who are still enrolled in traditional Medicare."

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.

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GuruFocus rated Humana's financial strength 4 out of 10. As a result of issuing approximately $2 billion in new long-term debt over the past three years, the company has a low cash-debt ratio.

The company's profitability scored an 8 out of 10 rating on the back of strong margins and returns that outperform over half of its competitors. As a result of recording consistent earnings and revenue growth, Humana also has a business predictability rank of 4.5 out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 10.6% per annum over a 10-year period.

Of the gurus invested in Humana, Jim Simons (Trades, Portfolio)' Renaissance Technologies has the largest stake with 2.23% of outstanding shares. Larry Robbins (Trades, Portfolio), Steve Mandel (Trades, Portfolio), the Vanguard Health Care Fund (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Chris Davis (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), David Tepper (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Caxton Associates (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio) and Ron Baron (Trades, Portfolio) are also shareholders.

DXC Technology

After selling out of the stock in the second quarter, Nygren picked up 3.9 million new shares of DXC Technology, allocating 0.75% of the equity portfolio to the stake. During the quarter, the stock traded at an average per-share price of $42.66.

Headquartered in Tysons, Virginia, the company, which provides business-to-business information technology services, has a market cap of $9.56 billion; its shares were trading around $37 on Monday with a price-book ratio of 1.11 and a price-sales ratio of 0.49.

According to the median price-sales chart, the stock is trading near its historical value.

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DXC's financial strength was rated 4 out of 10 by GuruFocus on the back of a low cash-debt ratio and poor interest coverage. The Altman Z-Score of 0.79 also warns that the company is in financial distress and could be at risk of going bankrupt.

The company's profitability fared a bit better, scoring a 6 out of 10 rating despite having negative returns and a declining gross margin. DXC also has a moderate Piotroski F-Score of 4, which indicates operations are stable. As a result of recording a slowdown in revenue per share growth over the past 12 months, the one-star business predictability rank is on watch. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per year.

With 4.61% of outstanding shares, Robbins is the company's largest guru shareholder. Ainslie, PRIMECAP Management (Trades, Portfolio), Pioneer, Wallace Weitz (Trades, Portfolio), Cohen, Greenblatt, Davis, Dodge & Cox and Caxton also have positions in the stock.

Additional trades and portfolio performance

During the quarter, the investor also boosted his holdings of Concho Resources Inc. (NYSE:CXO), EOG Resources Inc. (NYSE:EOG), Diamondback Energy Inc. (NASDAQ:FANG) and Qurate Retail Inc. (NASDAQ:QRTEA).

Nygren's $15.44 billion equity portfolio, which is composed of 52 stocks, is largely invested in the financial services space, followed by smaller positions in the communication services and consumer cyclical sectors.

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According to GuruFocus data, the Oakmark Fund underperformed the S&P 500 Index in 2018 with a return of -12.73%. The index posted a -4.38% return.

Disclosure: No positions.

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This article first appeared on GuruFocus.