12 Stock Picks From Oakmark’s David Herro
Renowned international value investor David Herro has a youthful grin, but he’s been around the block (and the world) a few times. One lesson he’s learned is to avoid the quick momentum trades.
He finds himself these days in a volatile trader’s market with a selloff seemingly taking root globally. But Herro is standing firm, scouring the globe for ideas, and then evaluating a company’s cash flow, valuation and management before investing. Indeed selloffs are good news for Herro, who built a position in Japanese stocks in 2012 that paid off smartly.
Herro is chief investment officer of international equity at Chicago-based Harris Associates, where he co-manages The Oakmark International Fund (OAKIX), which is closed to new investors, The Oakmark International Small Cap Fund (OAKEX), and The Oakmark Global Select Fund (OAKWX). Each has beaten its benchmark since the market bottomed in 2009. In 2010, Herro was named one of Morningstar’s managers of the decade.
Herro told Barron’s earlier this year that he thought emerging market stocks were too expensive and, despite a selloff in September, he still feels that way. But he’s capitalizing on the developing market growth nonetheless; read on to find out how.
Barrons.com: How are you positioned in emerging markets?
Herro: We are underweight emerging markets. There was a time when we were more than 20% emerging markets. Just on valuation, I am somewhat bearish until stock prices come down. I am a long-term bull on emerging market economies, but at this stage, I am not a bull on emerging market stocks. Investors should be cautious about emerging market stocks until prices in emerging markets fall off, and it is safe to look at them again.
Q: But what about the power of the emerging market consumer, and all that future growth?
A: You can buy companies in developed markets selling at much better values, with exposure to structural growth in emerging markets like Kering (PPRUY and KER.France), the owner of Balenciaga and other luxury brands; Diageo (DEO), the global drinks company; Daimler (DDAIF and DAI.Germany) and Bayerische Motoren Werke (BMW. Germany), the luxury auto producer. Compagnie Financiere Richemont (CFRUY and CFR.Switzerland) – its big brand is Cartier. Prada (PRDSY and 1913.HongKong) at this price is also attractive. In our core international fund, our only directly-domiciled emerging market stock is Samsung Electronics (005930.Korea), which is 2.6% of the fund. On revenues, we are probably in the low to mid 20% emerging markets exposure in that fund.
Q: Why luxury goods producers?
A: They benefit from the move in emerging markets as people shift up from the lower and middle classes into upper classes.
Q: What is the advantage of getting emerging market exposure indirectly?
A: You get lower-priced stocks, stronger corporate governance, and while emerging markets pick up, these companies are doing well in Europe and the United States. The trend in emerging markets is for the consumer to get stronger and stronger over time, so the best way to take advantage of this is to buy low-priced stocks based in the West with a lot of exposure to ....MORE
