Market-beating investor Bill Nygren says Facebook and Netflix are actually value plays

  • We’re value managers and we own Facebook. Facebook, on next year’s earnings estimates, is barely at a market multiple,” Oakmark’s Bill Nygren says.
  • "Netflix is adding 20 million subscribers this year that we believe are worth $1,000 per subscriber,” Nygren adds. “If you think about the market cap relative to the value that they’re adding, it’s about 11 times."
  • Nygren joined Harris Associates, the investment advisor for Oakmark Funds, in 1983. He manages the firm's Oakmark Investor Fund, which has $21.1 billion in assets.

A lot of people think Netflix and Facebook are overvalued growth stocks, but not longtime value investor Bill Nygren.

Nygren said Thursday he thinks investors could be missing out on two big value plays if they just look at their price-to-earnings multiples, which are widely followed measures of stock valuations.

“You hear people talk about excessive valuations on the FANG stocks. We’re value managers and we own Facebook. Facebook, on next year’s earnings estimates, is barely at a market multiple,” Oakmark’s Nygren told CNBC’s “Halftime Report.”

“We (also) own Netflix. Netflix is adding 20 million subscribers this year that we believe are worth $1,000 per subscriber,” Nygren added. “If you think about the market cap relative to the value that they’re adding, it’s about 11 times. So to us, the argument of it being 200 times earnings or some silly number like that just shows how bad the accounting is; it doesn’t show that the stock’s overvalued.”

Netflix is one of the best-performing stocks this year, having risen 91 percent in 2018. Facebook, meanwhile, is up nearly 20 percent year to date. Both stocks are outperforming the S&P 500 for the year, which is up 5.1 percent.

Facebook's founder and CEO Mark Zuckerberg speaks to participants during the Viva Technologie show at Parc des Expositions Porte de Versailles on May 24, 2018 in Paris, France. 
Chesnot | Getty Images
Facebook's founder and CEO Mark Zuckerberg speaks to participants during the Viva Technologie show at Parc des Expositions Porte de Versailles on May 24, 2018 in Paris, France. 

However, their valuations have raised concern that they may be too expensive. Facebook’s trailing price-to-earnings ratio was around 34.5 on Thursday, while Netflix’s was near 170. Meanwhile, the S&P 500’s price-to-earnings ratio was just under 22.

Nygren joined Harris Associates, the investment advisor for Oakmark Funds, in 1983. He manages the firm's Oakmark Investor Fund, which has $21.1 billion in assets. His fund has outperformed the S&P 500 over the past 10 years and since inception through June.

The portfolio manager also said he bought shares of Bristol-Myers Squibb, Hilton Worldwide and Gartner to his portfolio during the second quarter.

Nygren said Bristol is “an attractive long-term hold” given its strong pipeline of products and heavy investments in its oncology franchise. He also said Hilton is “now almost entirely a royalty stream of income that grows with the amount of stays at their hotels.”

He also said Gartner actually has an attractive valuation despite sporting a price-to-earnings ratio above 30. “That’s just a case of GAAP accounting not doing a good job of handling expenses that have very long-term benefits yet get expensed immediately.”