Value had a great year in 2022, but all of those rewards have been given back so far in 2023, “and then some,” says Bill Nygren, CIO of Oakmark Funds, in an interview with CNBC. Last year, Oakmark snapped up major growth stocks that had a lot of income statement spending that they believed was long-term spending that could be capitalized, such as Adobe and Uber, alongside growth stocks they already held in their portfolio, such as Alphabet, Meta, and Netflix. While those growth stocks have helped Oakmark do well this year compared to some of their other value peers, Nygren reiterated that Oakmark’s portfolio is mostly made of “cheap stocks on traditional metrics.”
Nygren contends that “today is a great time to be a traditional value investor”; even with growth’s big rally, there are still plenty of stocks with single-digit P/Es that have great potential to provide returns on par with the S&P 500’s, through a mix of dividend yield, cash flow reinvestment, and basic economic growth. As for the AI craze, Nygren says Nvidia’s share price is too expensive to make any sense to Oakmark. But he highlighted the companies that are adapting quickly to the technology as a particular corner of opportunity, such as Capital One, which was founded on the premise of using data better than big banks. Now, it’s likely that Capital One—which sells at 7 times earnings—will adapt AI to their advantage faster than their competitors, Nygren told CNBC.
When asked about opportunities in financials, particularly in regional banks that have slumped since March’s banking crisis, Nygren disclosed that Oakmark did add a position in Truist, citing that they believed the market was overly concerned about the risk in its mortgage portfolio and discounting their non-bank businesses which Nygren believes more than makes up for the mortgage holdings. But while there are a lot opportunities in the financial sector, Nygren tells CNBC that “the single-digit P/E group is much broader than financials.”