Wednesday, July 19th, 2006
10 fallen growth stock gems
Oakmark portfolio manager Bill Nygren said fallen growth stocks are the best place to invest right now in a recent speech to the 2006 Morningstar Conference. Nygren is a value investor in the tradition of Warren Buffett but ”our portfolio has more and more holdings that would typically be called growth stocks as opposed to value stocks.”
“We still believe that the best opportunities in the market are the fallen growth stocks: stocks that have performed poorly over the past five years but whose businesses have continued to perform well,” he said. “We believe these are still growth companies, but based on stock performance, they now look more like value stocks. We don’t believe the commodity price surge of the past three years will recur; in fact, we think it will likely reverse somewhat. And, if we are right, it is very unlikely that stock price trends of the past three years will continue.”
Nygren, a self-confessed ‘Buffett groupie’, outlined his list of leading growth companies whose shares are out of favour and offer excellent value:
1. Citigroup
2. Dell
3. Harley Davidson
4. Hewlett Packard
5. Home Depot
6. Kohls
7. Texas Instruments
8. Time Warner
9. Tyco
10. Wal-Mart
“Over the past six years, achieving earnings growth that was more than double the S&P was not sufficient to prevent these stocks from declining sharply in price,” Nygren said. “The starting P/E was just too high to overcome. But today, they face a very different outlook. They are now priced as if they are only average businesses. If the bears are right, and these prove to be only average businesses, well, they are already priced as such. So, that’s our margin of safety. But, if as expected, they show earnings growth that is superior to the S&P 500, these should now perform as superior stocks. We think it is likely that these 10 companies, all of which have been added to The Oakmark Fund in the past couple of years, will achieve long-term earnings growth significantly higher than the S&P 500 will achieve. And if we’re right, not only do we make money with the higher earnings growth, but we also think it is highly likely that we’ll also make money from P/E expansion.”
Word Count: 357. This entry was posted on Wednesday, July 19th, 2006 at 6:27 pm and is filed under GARP, Recovery Growth, Stock picks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
