Bill Nygren on Where the Opportunities are in the Stock Market

By on March 29, 2013

Bill Nygren - Oakmark FundBill Nygren, co-manager of the Oakmark fund, and a former Morningstar fund manager of the year, was interviewed by CNBC’s Scott Wapner on Wednesday. The Oakmark fund (OAKMX) has outperformed the S&P 500 over the past one, five and 10 year periods, and since its inception in 1991, in spite of having an annual expense ratio of approximately one percent per year.

Nygren on the significance of the events in Cyprus:

“At Oakmark we try to think about where the market might be headed five years from now; not next week or next month. I really doubt that in that time frame we’ll even remember this period was paralyzed by Cyprus.”

On the valuation of the stock market:

“I think what investors ought to look at is that the U.S. stock market is not expensive relative to its own history. It’s not expensive relative to other asset classes. It’s providing great income opportunities today relative to other asset classes. We think the stock market, despite being at a record high, is pretty cheap.”

On the suprising strength of defensive sectors such as health care and consumer staples in the first quarter:

“I think a lot of frustrated fixed income investors have migrated over to the equity markets and they’re looking for yields that are safer, looking for prices that are more attractive, yields that are higher than what they can get in the fixed income market in businesses that are pretty safe such as health care and consumer nondurables. We think the better opportunities tend to be today in the companies that aren’t paying out high dividends and instead are using that capital to repurchase their own shares.”

On the best places to invest now:

“I think looking at sectors, technology, financials and industrials are probably the most attractive places. In a sector like financials, a name like Capital One Financial (COF) is a big holding for us. The stock sells in the mid-50s. By next year COF will be making about $7 a share and in a slow growth economy most of that $7 a share could come back to shareholders either through dividends or share repurchases.”

On the reason technology companies are not participating in the rally and their relative valuation:

“I think the technology stocks aren’t as safe as health care or consumer nondurables. There’s a lot of change going on, especially around the PC business. But with prices where they’re at today, i really think investors are getting paid to take that risk on. We like stocks like Intel, Texas Instruments, Microsoft, Apple; all of them are repurchasing their own shares, all are paying dividends that are at reasonable levels and PEs are basically single digit after you adjust for their excess cash positions. We like Dell and are still a large holder of Dell.”

The interview continued with Nygren reviewing his previous comments on Dell in January and what he thinks about the company now, and the allure of Intel, Oracle, Fedex, Bank of America and Apple shares.

Back in April 2010, Nygren believed stock prices were cheap [link].

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