'Tremendous opportunity': Oakmark's Bill Nygren says it's a good time to buy these 3 cheap stocks

Published Thu, Oct 5 20239:17 PM EDT

It's a good time to buy cheap stocks in some sectors right now, according to Oakmark Funds' Bill Nygren. The top value-focused fund manager said what's "really unusual today" is how wide the spread is in price-to-earnings multiples. "The 50 most expensive stocks are about eight times as expensive as the 50 cheapest in the S & P 500 and that's really unusual — that ratio is typically more like half what it is today," Nygren told CNBC's " Squawk Box Asia " on Wednesday. "What that means to us is the hunting ground of low P/E stocks provides more opportunity than it typically does," he said, adding that the company's portfolio includes many single-digit P/E stocks. Nygren added that he's buying up stocks in high-quality companies in financial services, insurance, energy and some consumer durables — mostly paying single-digit P/E multiples for them. "It's not going to be like the past decade where you just buy the great businesses and don't worry about how expensive they are. But more of a fundamental investing focus on business value, we think it's likely to be rewarded," he said. Nygren, who joined Oakmark Funds in 1983, manages the $18 billion Oakmark Fund with Michael Nicolas and Robert Bierig. The fund, which was launched in 1991, has had an annualized return of 12.55% since its inception. That's higher than the Russell 1000 Value's 9.71% return and the S & P 500 Total Return Index's 10.16%. The fund has 40% of its holdings in the financials sector, 15.3% in communication services, and 12.7% in consumer discretionary sector, with the rest in tech, energy, health care and others. Nygren also manages the Oakmark Select Fund. Banks Nygren said he's been overweight on banks for a while now. He described Wells Fargo as a "tremendous opportunity." "So a company like Wells Fargo — around tangible book value, single digit P/E multiple with one of the strongest retail deposit franchises and moving well along the path of being out of the extra regulatory supervision that they've had — we think provides a tremendous opportunity for long-term investors," said Nygren. But, he said, that's not unique to Wells Fargo. He also likes Capital One , which he said is also trading at a single-digit P/E. He said top management in the large banks have "become very comfortable" with returning excess capital to shareholders. "There's not this competition any longer to measure each other on loan growth as we possibly go into a slower economy. So we think that puts the whole banking industry in a much better position than it's been in the past. It's cheaper than it's been in the past," said Nygren. "And we think the big names are more competitively advantaged." Both Wells Fargo and Capital One are in the Oakmark Fund's top 10 holdings, at 2.9% and 3.4%, respectively. Energy Nygren said they own "a lot of stocks where there is risk, where investors are worried about the futures of the [companies]" — but because of that, the entry level price is very low. One sector "in that ballpark" is energy companies, he said. One stock he's positive on is U.S. oil company ConocoPhilips , which he describes as a "really compelling story." Nygren noted that the company has said it could, over the next decade, return "one and a third times" its current market cap to shareholders in a combination of dividends and share repurchases. "We think that's a really, really compelling story for a management team that has created one of the lowest cost producers in the energy industry, very focused on key basins and a mentality of management that they aren't going to invest our capital except in areas where they're additively advantaged," he said.