Oakmark Funds released its 2019 Q3 letter to investors giving its commentary on a number of its positions, highlighting the investment strategy and stock picks for the quarter- download a copy here.
The investment management company did not have a good quarter, losing 2.1%, while the S&P 500 gained 1.7%. For the fiscal year ending September 30, the Oakmark Fund was down 5.7%, behind a 4.3% gain for the S&P 500.
During the quarter, Oakmark initiated a position in Humana Inc (NYSE: HUM), a for-profit American health insurance company based in Louisville, Kentucky.
The hedge fund offered commentary on the stock in the 2019 Q3 letter:
“Humana is a leader and near pure-play in the fastest growing sector of managed care, Medicare Advantage. Each year, more seniors choose Medicare Advantage over traditional Medicare due to the compelling combination of lower costs and expanded benefits. Humana’s scale advantages and focus on senior care allow the company to make targeted investments in its members’ health, resulting in fewer unnecessary hospitalizations and lower chronic care costs. Much of these savings are then reinvested in the health plan, resulting in a continuously improving customer value proposition. The company’s brand also resonates well in the marketplace and has helped drive double-digit annual membership growth over the past decade–well above the rest of the industry. Further, we believe Humana has a long runway ahead as it benefits from an aging population and continued conversion of the more than 60% of seniors who are still enrolled in traditional Medicare. Yet Humana’s shares are currently trading at a discount to the S&P 500 earnings multiple, which we believe doesn’t give the company enough credit for its durable competitive advantages and strong secular growth outlook.”
We talked about health insurance stocks in September when billionaire Leon Cooperman recommended one. Oakmark exited from two positions in the quarter – Baxter International Inc (NYSE: BAX) and News Corp (NASDAQ:NWS).
Commenting on the exit from BAX and NWS, Oakmark had the following to say in its letter:
“We first bought Baxter in the fourth quarter of 2016 with the belief that new CEO Joe Almeida could increase the company’s margins substantially. Since then, margins have increased from 11% to over 18%, and the share price has doubled. With this strong performance, the stock no longer sells at a meaningful discount to our estimate of intrinsic value, so we sold our holdings. In terms of News Corp, we continue to believe that the company’s highly valuable businesses are not being properly recognized by the market, but we have lost confidence in the company’s management team and its ability to close the value gap. We also underestimated how challenging the transition from print to digital would be for several of the company’s global publications whose value growth has fallen short of our expectations. Therefore, we elected to redeploy our assets to purchase other stocks that we believe are undervalued, run by better management teams and offer stronger growth prospects.”
BAX was in 34 hedge funds’ portfolios at the end of June. There were 30 hedge funds in our database with BAX positions at the end of the previous quarter. Our calculations also showed that BAX isn’t among the 30 most popular stocks among hedge funds.
Disclosure: None. This article is originally published at Insider Monkey.
