Value investor Bill Nygren buys more Netflix shares, says Wall Street misjudging the stock

Published Tue, Aug 3 20213:51 PM EDTUpdated Tue, Aug 3 20214:19 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Wall Street is misjudging Netflix , Oakmark Funds' Bill Nygren told CNBC on Tuesday, leading the well-known value investor to recently buy more shares of the streaming giant. "You're looking at a company that, for a couple of quarters, isn't going to see tremendous subscriber growth, is not going to see tremendous earnings growth" because the coronavirus pandemic pulled forward both metrics, Nygren said on "Halftime Report." "But we think that's the wrong way to look at it," the portfolio manager added. "Subscribers watch more Netflix now than they ever have, so the engagement is the best its ever been and if you look at the two-year growth stack, the growth in subscribers has been way beyond what people expected two years ago, so we think this is a very healthy company that an extreme focus on near-term numbers is keeping hidden in plain sight," he said. Shares of Netflix have dropped more than 5% so far this year. The entertainment company's shares closed at $510.82 on Tuesday, down 0.8%. Investors in recent months shifted some of their holdings away from pandemic stay-at-home stocks toward companies in sectors, like energy, that benefit from the nation's economic reopening. Nygren acknowledged the challenges of that shift, on top of tough new streaming competition from the likes of Disney+ and WarnerMedia's HBO Max. However, he said, "Our view of [Netflix] is it is, and will remain, the dominant streaming play. He added, "I don't think investors have really come to grips with the idea that the average person is probably going to subscribe to three or four streaming services." Netflix recorded 1.54 million paid net subscribers additions in the second quarter, bringing its total to more than 209 million paid subscribers . Nygren, who has spoken positively about Netflix for years, has served as portfolio manager for the Oakmark Select Fund since 1996 and the Oakmark Fund since 2000. The Oakmark Select Fund is up more than 62% in the past 12 months, while the Oakmark Fund has soared 60% over that same span. The S & P 500, for comparison, has gained around 34% in the past year. As of June 30, Netflix had a 4.8% weighting in the Oakmark Select Fund and a 2.4% weighting in the Oakmark Fund. Netflix has a 0.6% weighting in the SPDR S & P 500 ETF Trust , a popular ETF that tracks the broad equity index. "At Oakmark, we typically own about 50 stocks in the portfolio and our average holding period is about five years," Nygren told CNBC Tuesday. "In this past quarter, we only added one new name and the rest of the money that we got from the securities we sold went into a bunch of the names that were already in the portfolio that, frankly, we thought were cheaper than other new ideas would've been."

The Netflix logo is seen on its office in Hollywood, California.

Lucy Nicholson | Reuters

Wall Street is misjudging Netflix, Oakmark Funds' Bill Nygren told CNBC on Tuesday, leading the well-known value investor to recently buy more shares of the streaming giant.