MW Bargain hunting? This value manager has scooped up Airbnb, an AI-healthcare play and a GE spinoff

By Barbara Kollmeyer

Bill Nygren's Oakmark Fund also likes healthcare

The last two years have seen investors put faith in tech and largely get rewarded. That's as value stocks have lagged behind. Vanguard's S&P 500 large-cap value ETF VOOV returned 9.8% last year and 19% in 2023, while its large-cap growth ETF VOOG returned 35% and 28%, respectively.

"One of the nice things for a value investor today is because the S&P has been so concentrated in large-cap technology companies, the cheap stocks are spread out across most of the other industries," Bill Nygren, who co-manages the value-focused Oakmark Fund OAKMX and is also chief investment officer at parent Harris Associates, told clients earlier this month.

In our call of the day, Nygren and his team flag a handful of overlooked stocks that they've been buying, as detailed in the fund's just-released fourth-quarter highlights.

First up is online marketplace Airbnb $(ABNB)$, whose shares they say have been hit by short-term worries about the economy and travel. They see a "long growth runway as global travel is an attractive market, and alternative accommodations have been taking market share," and expect Airbnb to drive more growth with "valuable services" for both sides of its market.

Alternative investment manager Carlyle Group $(CG)$ is the second. Trading at less than half the price/earnings multiple of its peer group, management is "taking the right steps to continue expanding the firm's platform beyond its private equity roots," a potential boost for organic growth, says Oakmark. Its brand and distribution capabilities also set it up well in the retail channel, where allocations to alternative should pick up.

Next up, Elevance Health (ELV). "Managed care stocks have underperformed the market recently as the industry faces headwinds from mismatches between reimbursement rates and medical costs," said Nygren and co. But they see those headwinds as "transitory and changes to pricing and plan designs will help realign profit trends over time." While a return to "normal" profitability may take a few years, they see shares trading at a "depressed multiple of depressed earnings."

Another stock they like is GE HealthCare Technologies $(GEHC)$, which they say is "well-positioned to capitalize on technology trends as a greater portion of the value proposition comes from AI-enabled software and a shift toward precision care." A failure by markets to appreciate the global health technology group's "self-help potential" and worries about weak China demand have driven down valuation, they say.

They also highlight beverage group Keurig Dr Pepper $(KDP)$, whose shares got hit last year by weakness in its coffee unit. Given coffee's enduring popularity, they see that move as limited, as it is "poised to capitalize on this demand with the largest installed base of single-serve brewers and ample runway to increase household penetration." Right now, Oakmark says the market is giving that "minimal value."

The fund's top performers in the quarter were Wells Fargo $(WFC)$ - "a competitively advantaged bank, with a superior business mix" - Salesforce $(CRM)$ and General Motors $(GM)$.

One underperformer they aren't giving up on is managed healthcare group Centene $(CNC)$, which has been dogged by worries about legislative changes coming from the incoming administration of President-elect Donald Trump. That's overdone they say, as Centene has "significant embedded earnings power that can drive continued EPS growth even with a less accommodative political backdrop."

The markets

S&P 500 (ES00) and Nasdaq futures (NQ00) are pushing higher with Dow industrials futures (YM00) lagging. Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y are inching up and the dollar DXY is steady.

   Key asset performance                                                Last       5d      1m      YTD    1y 
   S&P 500                                                              5931.55    0.22%   1.01%   0.85%  25.16% 
   Nasdaq Composite                                                     19,390.47  -0.45%  -0.01%  0.41%  30.53% 
   10-year Treasury                                                     4.663      -4.30   14.40   8.70   55.44 
   Gold                                                                 2712.9     1.22%   4.36%   2.79%  35.04% 
   Oil                                                                  77.11      5.17%   11.01%  7.29%  5.86% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

More bank earnings are being released, including from Bank of America $(BAC.SI)$, whose stock rose in premarket trade.

UnitedHealth $(UNH)$ reported weaker-than-forecast revenue.

Nvidia supplier Taiwan Semiconductor $(TSM)$ reported stronger-than-expected earnings.

The next big data point is retail sales for December due at 8:30 a.m., with economists forecasting a 0.5% gain.

Weekly jobless claims also are due.

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The chart

The Vanda Research team says retail investors have been buying fewer Magnificent 7 stocks since Trump's election victory. But that "mini or quasi retail capitulation" is "generally a positive contrarian development for equity markets." Wednesday's CPI data, alongside recent manufacturing and jobs data, "might just be the catalyst retail traders needed to jump back in."

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   INFY  Infosys 
   NVDA  Nvidia 
   TSLA  Tesla 
   TSM   Taiwan Semiconductor Manufacturing 
   GME   GameStop 
   AAPL  Apple 
   AMD   Advanced Micro Devices 
   RGTI  Rigetti Computing 
   QBTS  D-Wave Quantum 
   MSTR  MicroStrategy 
   HOLO  MicroCloud Hologram 

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Last year bitcoin surged past $100K, driven by spot bitcoin ETFs and Trump's crypto-friendly policies. Plans for a strategic bitcoin reserve and regulatory reforms mark a pivotal moment for crypto. Should bitcoin play a bigger role in your portfolio?

-Barbara Kollmeyer

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January 16, 2025 06:57 ET (11:57 GMT)

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