Bill Nygren, renowned value investor and manager of the Oakmark Select Fund (MUTF:OAKLX), has voiced concerns over the heavy tech concentration within the S&P 500 index. Despite its historical position as a diversified benchmark, Nygren highlighted that a handful of tech giants now dominate its performance. His Oakmark Select Fund, which oversees approximately $6.3 billion, has consistently outperformed the S&P 500 over its nearly three decades of operation, generating a 12% annual return compared to the index’s 9.8%. In response to the changing market landscape, Nygren continues to invest in undervalued companies, particularly those with strong cash flows and active share repurchase strategies.
How does Deere fit Nygren’s criteria?
Deere & Co. (NYSE:DE), a leading agricultural equipment manufacturer, has caught Nygren’s attention due to its robust buyback activity and track record of rewarding shareholders. Over the past decade, Deere has consistently repurchased shares every quarter, with buybacks exceeding $1 billion per quarter for much of the 2022–2024 period. While the company had a solid operational performance in 2023, its stock has lagged behind broader market gains, rising just 8% over the past three years. Nygren increased his position in Deere by 29.4% during the third quarter, making the stock 7% of the Oakmark Select portfolio. Analysts remain divided, with price targets ranging from $444 to $550 per share, implying varying degrees of upside potential.
Why has APA drawn significant interest?
Another major addition to Nygren’s portfolio is APA Corporation (NYSE:APA), an oil and gas exploration and production company, whose shares have faced pressure due to weaker energy prices. Over the last three years, APA has underperformed significantly, with a 20% decline. Despite this, the company maintains a strong position in the energy sector, including substantial operations in the Permian Basin. APA has also actively pursued share buybacks, with authorization for repurchasing 40 million additional shares. Nygren nearly doubled his holdings in APA during the third quarter, now owning 8.19 million shares, a position he has held since 2013.
Nygren’s strategy of investing in undervalued companies with shareholder-focused policies contrasts with the growth-oriented focus of many investors today. While Alphabet (NASDAQ:GOOG) remains a significant holding in his portfolio, Nygren favors companies like Deere and APA, which prioritize share repurchases and strong cash flow utilization to drive value.
Nygren’s recent moves reflect a continuation of his long-held investment philosophy. Historically, he has emphasized the importance of share repurchase programs as a tool for undervalued companies to manage their capital efficiently. The consistency of his approach is evident, as he has previously highlighted the potential for such strategies to benefit shareholders when value convergence mechanisms are less prevalent in modern markets.
Nygren’s focus on value investing underscores the opportunities for long-term investors in companies overlooked by the market. Deere and APA both align with his preference for businesses capable of generating significant free cash flows and reinvesting in themselves through buybacks. As tech stocks dominate the broader index, investors seeking diversification might find value in Nygren’s stock choices, particularly in sectors like agricultural machinery and energy exploration.
