Bill Nygren has been at this for over 30 years. Since his Oakmark Fund‘s inception in 1991, the value investing legend has generated annualized returns of 13%, handily beating the S&P 500‘s results of 10.6% over that time frame.
The billionaire investor is a true value investor, looking for stocks that are trading for less than their intrinsic value. In a market where growth stocks have ruled the roost and valuations have skyrocketed over the past decade or more, value investing has become difficult. But as Nygren’s track record shows, waiting for the right stock to be priced right pays off.
His Harris Associates firm is the parent of the Oakmark family of funds. It currently holds over 130 stocks in its portfolio that has $94.2 billion in assets under management. While his 13F filing with the Securities & Exchange Commission shows he did sell down a few of his positions in the second quarter, Nygren was primarily buying stocks.
And one stock stands out amongst all others. He increased his stake in this company by 532%, so let’s see why this one stock may have interested him so much.
Key Points About This Article:
- Bill Nygren is a value investing legend and his Oakmark Fund has outperformed the S&P 500 since its inception in 1991. It has posted annualized returns of 12.9% versus 10.6% for the index.
- While the billionaire investor was largely a buyer in the second quarter, he went deep on one stock in particular by quintupling his holdings, which may not have been a bad move.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Equifax (EFX)
It’s true, Nygren bet big on consumer credit agency Equifax (NYSE:EFX), buying more than 1.9 million shares at an average price of $255 per share. After having sold down his position over the past year, the value investing icon now owns almost 2.3 million shares valued at $555 million. Because that is still not enough to put Equifax into a top 10 holding (or top 20 position, for that matter), why did Nygren reverse course and scoop up fistfuls of shares?
Equifax, of course, is one of the leading credit reporting bureaus along with TransUnion (NYSE:TRU) and Experian (OTC:EXPGY). While the triumvirate are all entrenched, with extensive data resources that give them extreme pricing power, Equifax has a competitive edge as it was an early user of alternative data sources to assess a borrower’s credit worthiness.
Alternative data includes information gleaned from checking and deposit accounts, short-term loans, and shorter installment loans and more. While companies like Upstart Holdings (NASDAQ:UPST) have tried to use artificial intelligence to give lenders a larger pool of customers to work with at lower risk, alternative data provides them with a broader view of a consumer’s finances that allows them to make better lending decisions. For those with little to no borrowing history, these alternative sources give a better picture of the consumer’s situation.
Assessing the new risk environment
The Federal Reserve’s unprecedented ratcheting up of interest rates over the past few years created significant headwinds for the reporting bureaus. As consumers were pinched by the twin ravages of high inflation and high interest rates, the number of adverse indicators for credit inquiries rose.
Equifax stock lost nearly 45% of its value in 2022 and hovered at that depressed range until late last year when talk of interest rate cuts began to pick up. From that point on, EFX stock began its ascent and has since risen over 80%. Now that the Fed has abandoned its “higher for longer” interest rate monetary policy, the situation for the credit bureaus could see further dramatic improvement.
The chatter that several interest rate cuts could be in the offing was likely the motivation for Nygren to dive headfirst back into Equifax stock. The consumer credit agency has substantial and growing government contracts that could offer greater growth potential than its workforce business.
For example, Equifax’s verification services, its largest operating segment, saw revenue rise 9% in the second quarter to $516 million. It was due almost entirely to its government business. The mortgage portion of the verification business declined for the period. Equifax has possibilities for expansion, though, in automotive, credit cards, and employment screening.
Key takeaways
It appears it was a very timely purchase of EFX stock for Nygren. Even though he didn’t pick up this large tranche of stock at its recent lows, he seems to have gotten in at an opportune time. He has an approximate 13% gain so far on these shares, but it shows you don’t have to perfectly time your entry and exit points to be successful.
By patiently waiting for stocks to trade at discounts to their intrinsic value so that a margin of safety for your investment is built in, you have the best chance of beating the market over the long run.
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