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Top portfolio manager buys MGM on the bigger picture

How Nygren is beating 95% of his peers this year

Playing a careful and selective game is what's put portfolio manager Bill Nygren above 95 percent of his peers this year.

The manager of the Oakmark Global Select Fund said his company's method has proven successful for more than 25 years, even though it has led to interest in some unpopular investments, like financial stocks.

"We look to identify out-of-favor companies selling at a large discount to intrinsic value run by managements that try to maximize long-term per-share value," he told CNBC's "Fast Money Halftime Report" on Monday.

His only addition this quarter to his fund's portfolio, which is currently up 10 percent compared to competing portfolio managers, is MGM Resorts, which he attributed to his firm's unique way of looking at a company's larger picture.

"At Oakmark, we've kind of made up our own version of the '80-20 rule' — that when 80 percent of what people are worried about in a company is relating to a division that's only 20 percent of the value, that usually leads to a pretty good opportunity," Nygren said.

The overamplified 20 percent, in this case, are MGM's Macau results, which are part of a larger slump in Macau gaming revenue, Nygren said. Those results, however, comprise only 15 percent of Oakmark's estimated value for MGM as a whole, which led Nygren to add the company to his selective list.

"If you look at where individual casinos are trading hands, MGM's properties valued at those same prices would be 50 percent higher than the current stock price," he said.

Nygren added that the supply-demand outlook on the Las Vegas strip, where MGM has most of its properties, is positive, which also triggered Oakmark's interest in the company's stock.

The key, he said, is to resist the urge to outguess management on short-term decisions and instead focus on long-term outlooks.

That's why big banks like Wells Fargo remain in his portfolio, Nygren said. "We think almost all the banks are attractive, believe they deserve to sell at a premium to book value, and that as we get to an end of this period where capital requirements are growing, they will be able to return most of the cash flow that they generate to the owners," he said.