Bill Nygren's commentary on the Oakland funds

"At Oakmark, we are long-term investors. We attempt to identify growing businesses that are managed to benefit their shareholders. We will purchase stock in those businesses only when priced substantially below our estimate of intrinsic value. After purchase, we patiently wait for the gap between stock price and intrinsic value to close."-Stock Article Link

Bailing out of investing guru Bill Nygren

This article writer is bailing out on the Oakland Select fund because of the slow returns after 4 years. Let's learn from Bill Nygren's Mistakes.

"If you can buy a higher-quality company for the same price as a lower-quality company, that's value investing, too," he said then. Today he says: "That was beyond early; that was a mistake. In hindsight, we missed how tremendous the cyclical recovery in earnings would be." Consequently, stock prices of higher-quality companies stagnated while those of lower-quality companies, including those more responsive to the business cycle, continued to advance as their profits skyrocketed.....

Oil and other industrial materials were among the biggest beneficiaries of that economic recovery. Nygren's second big mistake was to avoid these companies. History argues that commodities are bad long-term investments. While there have been short-term spikes in commodity prices -- and commodity stocks -- innovation and capital investment usually results in an increase in supply, and profits and share prices retreat. But thanks largely to tremendous growth in emerging markets, especially China, the current commodity cycle has turned out to be far longer than Nygren anticipated." - Stock Article Link

Investing guru, Bill Nygren's Stock Holdings

Bill Nygren is a Buffettship value investor. He is a Portfolio Manager of The Oakmark Fund (OAKMX) and The Oakmark Select Fund (OAKLX). The firm's flagship fund, The Oakmark Fund, launched in 1991 and has average annual total returns of 15.48%. I like to look at the Oakland Select Fund because it seeks capital appreciation by investing in a concentrated portfolio (approximately 20 companies). Since inception (1996), average annual total returns has been 17.96% !

"The stagnation of housing prices has had a more negative effect on homebuilders' current earnings than we had anticipated. Despite that, we believe that large homebuilders have significant and increasing competitive advantages over small builders, which keeps us confident in their long-term outlook. We added to our Pulte position last quarter....

We continue to believe that Washington Mutual's retail bank is very valuable and is growing more rapidly than its competitors are growing. The low valuation of a desirable business is what makes us believe that Washington Mutual continues to merit its heavy portfolio weighting.

During the quarter we sold our position in Gap Stores to make room for Home Depot. Home Depot announced the sale of their building supply business, which captured a couple billion dollars of profit and also allowed new management to focus 100% on their retail business. In the same press release, Home Depot also announced a massive acceleration of their share repurchase plan intending to spend $22 billion to repurchase 30% of their share base. With debt available on such attractive terms and with Home Depot stock trading at only 12 times expected earnings, we applaud the aggressive repurchase."-Link


Oakmark Select Fund Stock Holdings list as of June 30, 2007 - Link

Bill Nygren not worried of the subprime crisis

Bill Nygren has 13 percent of the $5.9 billion mutual fund's assets in financial stocks. "Investors are overreacting to the upturn in mortgage delinquencies,'' the 48-year-old Nygren said in an interview from his office in Chicago. "As an investor who's committing money for five years or longer, I'm getting higher-quality companies than usual for less of a premium.''

Financial stocks look very attractive,'' with above- average yields and below-average price-to-earnings multiples, Nygren said. "If you believe the negative story on the mortgage market, you have to be negative on most forms of consumer lending, but we feel very strongly about the retail banking growth story.'' - Stock Article Link

Buy Washington Mutual (WM) and get 18.4% compounded return

I'm putting my head in the guillotine and recommending Washington Mutual, even with the subprime lender scare.

Washington Mutual (WM) is the largest U.S savings and loan company and the seventh biggest among all U.S based bank and thrift holding companies based on assets. As of December 31, 2006, the company operated 2,225 retail banking stores and 472 lending stores and centers in 36 states.

Historics.
- 5.40% ($2.16) current dividend yield is very real (Based on Friday's closing price of $39.88). Since 1997, here's the dividend payout trend ...
$0.47, 0.55, 0.65, 0.76, 0.90, 1.06, 1.40, 1.74, 1.90, 2.06, to currently $2.16.

Extremely predictable and there's nothing like the dividend to protect you if the price drops. The lower the price, the higher the yield and more income investors will come in and buy it. The last time it had such a high yield was probably in 2001 at 5.27% when the stock price low was $14.42 and dividend was at $0.76.

-Price/Book is only 1.44, low compared to it's past....since 1997 here's the ratios..
2.3, 1.9, 1.8, 1.3, 2, 1.9, 2.1, 2.1, 1.9, to currently 1.44

-ROE is nothing to brag about...since 1997...
9.3%, 20.2, 19.8, 19.8, 22.5, 22.8, 19.1, 12.1, 14.1, to currently 11.48%

-Book Value Growth in the last 10 years has been 12% from $9.09 to $28.03

Forecast.
-At current EPS of $3.64 compounded at an earnings future growth rate of 9% (MSN shows 11%, Yahoo! shows 12%) for 5 years and multiple it at a conservative future p/e of 13 = $72.81 in 5 yrs. Based on $39.88 buy price with dividends, that's a compounded rate of return of 18.40% for 5 years.

Other Factors
-9% of WM's loans is subprime.
-back in Nov 2006, I wrote a Bill Nygren article, "since inception in Aug. 1991, his Oakmark fund has returned 16.36% annually. Since inception in Nov. 1996, his Oakmark Select fund has returned 20.21% annually." He's increased his WM postion from 14 to 15% currently. Your margin of safety is buying it cheaper than Nygren!

With the subprime scare, I would buy a little now at $39 and wait and buy a little more if it dips to 35. The cardinal rule is "Never buy all at once."

Bill Nygren invests in Washington Mutual

Bill Nygren is a Buffettship value investor. He is a Portfolio Manager of The Oakmark Fund and The Oakmark Select Fund. Since inception in Aug. 1991, his Oakmark fund has returned 16.36% annually. Since inception in Nov. 1996, his Oakmark Select fund has returned 20.21% annually.

By looking at his Oakmark Select Fund, he has 14% in Washington Mutual (WM) which he bought it around $42 since that holding is only up 2% to date. Now 14% for a fund is a big bet so Nygren must confident about this purchase. It also has close to 5% yield based on the WM closing price of $43.00, so you get paid to wait for it to go up...

Based on my analysis, current eps is at $3.40 compounded at 9% growth for 5 years multiplied by a conservative P/E of 13 gives you a future price of $68.01. That gives you a compounded rate of return of 10% + 5% dividend yield = 15% for 5 years.