Value investor Bill Nygren reveals some of his top picks including bank stocks and Netflix

Published Wed, Apr 7 20212:26 PM EDTUpdated Wed, Apr 7 20213:54 PM EDT

Top value investor Bill Nygren on Wednesday believes there are still plenty of opportunities for bargains in a market at record levels after an epic rebound from the pandemic-induced sell-off. Oakmark Funds' Nygren is one of the best-performing value-focused fund managers on Wall Street with decades of experience. He has been the manager of the Oakmark Select Fund since 1996 and the Oakmark Fund since 2000, both of which have doubled in the past year and beaten the market. Nygren talked to CNBC's senior markets commentator Michael Santoli for a special live PRO Talks discussion for PRO subscribers where he revealed his top value picks in financials, energy as well as technology. Read the highlights below. Banks still cheap The money manager said bank stocks are still cheap compared to their historical average even after a strong run in the first quarter of 2021. Bank stocks historically traded at two-thirds to three-quarters of the market's price-earnings ratio, so if the S & P 500 is trading at 22 times next year's earnings, the group would have a multiple of 13 to 15 times, Nygren said. Today, the average bank stock only sells at about 10 times forward earnings, meaning that they are still underpriced. "We believe investors have been slow to recognize what PE multiple this industry ought to sell for," Nygren said, adding that he currently owns Wells Fargo , Bank of America , Citi, Ally Financial and Capital One . For Wells Fargo, Nygren said there's another turnaround story to the name as the bank continues to shake off its account fraud scandal. He said he expects Wells to improve its expense ratio going forward. Energy stocks most underappreciated The energy sector has been the best performing group this year with a 30% rally, but Nygren thinks the cohort is still one of the most neglected areas of the market. "One of the important areas that got hurt by the lockdown was energy usage. Even though energy stocks have recovered a lot since November, many of them having doubled. Most of them still sell at maybe two-thirds or less where they traded two years ago even though oil is back at $60 a barrel," Nygren said. He highlighted two names that are selling well under two-thirds of business value with an expected price of oil about $60 — ConocoPhillips and Apache Corp. ConocoPhillips has the industry leading management team in terms of rational capital allocation and just had a well-timed acquisition, Nygren added. Finding value in technology While technology stocks are generally associated with high growth and elevated valuations, Nygren said some names are great buys if you look at them through a different lens. Nygren said he likes to focus on the services area of tech. He highlighted Alphabet, Facebook and Netflix which he said offer services to consumers in order to sell advertising. "Much like the cable stocks that we owned 25 years ago that didn't have earnings, didn't have book value and if you look at it at a per subscriber basis, they look really cheap," Nygren said. "Netflix, if you value the company at $1,000 per subscriber, which is about what AT & T thought what HBO was worth when they made that acquisition ... you are paying very little today in future growth in subscribers," Nygren added. Oakmark Funds first bought Netflix two years ago. For Alphabet and Facebook, Nygren said it's more of a matter of giving them credit for the cash they have on the balance sheet. "The investments they are making in business they aren't currently making money," Nygren said. "If you try to assign values for those interesting, almost venture capital-like investments and subtract out the cash, we don't think we are even paying the market multiple for the Google search engine part of Alphabet."

Top value investor Bill Nygren on Wednesday believes there are still plenty of opportunities for bargains in a market at record levels after an epic rebound from the pandemic-induced sell-off.

Oakmark Funds' Nygren is one of the best-performing value-focused fund managers on Wall Street with decades of experience. He has been the manager of the Oakmark Select Fund since 1996 and the Oakmark Fund since 2000, both of which have doubled in the past year and beaten the market.

Nygren talked to CNBC's senior markets commentator Michael Santoli for a special live PRO Talks discussion for PRO subscribers where he revealed his top value picks in financials, energy as well as technology. Read the highlights below.