U.S. equities finished higher during the quarter with 4 of 11 GICS sectors posting positive returns. By sector, information technology and consumer discretionary contributed the most to market returns, while health care and materials were the biggest detractors.
PORTFOLIO PERFORMANCE
The portfolio’s return was 2.03% (net) for the reporting period. This compares to the Russell 1000 Value Index that returned -1.98% for the same period.
Top contributors:
Wells Fargo was a contributor during the quarter. The U.S.-headquartered diversified bank’s stock price rose after reporting what we see as solid third-quarter earnings where the company’s efficiency ratio continued to improve as expenses were well controlled. The fee income segment also performed well, growing 12%. In addition, Wells Fargo had the opportunity to repurchase $3.5 billion in shares during the period, bringing the full-year repurchase to roughly $16 billion. In November, the stock price continued its upward trend following the U.S. presidential election as investors are optimistic that the financials sector will benefit from looser regulations and lower corporate taxes, thus stimulating a better environment for dealmaking. We continue to believe that Wells Fargo is a competitively advantaged bank that can use its superior business mix and return potential to unlock further value.
Salesforce was a contributor during the quarter. The U.S.-headquartered application software company’s stock price rose following the release of third-quarter earnings where metrics were strong across the board. Revenue modestly outperformed consensus expectations and management increased the low end of its guidance for the year. In addition, margins continued to expand and Salesforce (CRM) launched its new AI-based product Agentforce, which closed 200 deals in its first week with several Fortune 500 companies as early adopters. We appreciate the company’s strong competitive position and management’s commitment to maximizing shareholder value. General Motors was a contributor during the quarter. The U.S.-headquartered automobile manufacturer’s stock price rose aided by solid third-quarter results and increased full-year guidance for adjusted earnings before interest and tax (EBIT), earnings per share and free cash flow. The company repurchased USD 1 billion in stock during the quarter and suggested the pace of repurchase will increase near term. General Motors also issued better than expected initial 2025 guidance that calls for adjusted EBIT to come in a similar range to 2024. We believe the company is well-positioned to compete in an evolving auto industry, is significantly undervalued, and that per share value is being enhanced as the company continues to repurchase shares at a significant discount to our estimate of intrinsic value.
Top detractors:
Centene (CNC) was a detractor during the quarter. The U.S.-headquartered managed health care company’s stock price declined despite releasing third-quarter results that showed resilient fundamentals in the face of short-term industry pressure. Centene also issued above consensus guidance for 2025 earnings per share (EPS) at its December investor day. We believe the largest driver of the stock price decline in the quarter was investor concern around how legislative changes following the recent U.S. presidential election could impact the company. In our view, this unease is overly discounted into the share price. We see Centene as having significant embedded earnings power that can drive continued EPS growth even with a less accommodative political backdrop. Shares trade at less than 8.5x 2025 EPS guidance, which we think is a compelling valuation for a business that generates healthy returns on capital and operates in a secularly growing industry.
IQVIA Holdings (IQV)was a detractor during the quarter. The U.S.-headquartered life sciences tools and services company’s stock price declined due to a reduced near-term outlook in its R&D solutions segment primarily related to a program cancellation and the delay of two large clinical trials that will resume in 2025. However, we believe that the headwinds in this part of the business should abate over the course of 2025. We are also encouraged that growth in the technology and analytics solutions segment is recovering as expected. We believe IQVIA stock is cheap at a mid-teens multiple of normal earnings power.
Celanese (CE) was a detractor during the quarter. The U.S. headquartered specialty chemicals company’s stock price declined after reporting third-quarter earnings that reflected continued pressure from weak end markets. The engineered materials segment detracted most from performance due to declines in auto production rates, particularly in Europe. Celanese’s free cash flow remained challenged due to underwhelming earnings, and a larger than expected working capital outflow. In addition, the company’s financial leverage came under the spotlight after acquiring DuPont Mobility and Materials. After a challenging year, Celanese announced that CEO, Lori Ryerkerk will step down and be replaced by Scott Richardson who has been with the company for two decades and is currently serving as COO. Despite current headwinds we see Celanese as a clear leader in engineered materials that offers an attractive upside.
PORTFOLIO POSITIONING
We initiated the following position(s) during the period:
Airbnb (ABNB) is an online marketplace to list, discover and book unique accommodations worldwide. The company benefits from a strong network effect between its guests and hosts. We believe there is a long growth runway as global travel is an attractive market, and alternative accommodations have been taking share. We anticipate Airbnb will drive further growth by creating more valuable services for both sides of its network, which includes the potential for paid placement, which has created significant economic value for comparable marketplaces. In our view, management is aligned with shareholders and well qualified to lead Airbnb as the company attempts to capture these growth opportunities. Short-term concerns about the macro travel environment and declining margins stemming from growth investments allowed us to purchase shares at a discount to our estimate of business value.
Elevance Health (ELV) is one of the nation’s largest managed care organizations. We believe managed care is an attractive industry, as health expenditures have historically outpaced GDP, and the short business cycle allows companies to quickly correct underwriting mistakes. More recently, managed care stocks have underperformed the market as the industry is facing headwinds due to mismatches between reimbursement rates and medical costs. We believe this will prove transitory and that changes to pricing and/or plan designs will help realign profit trends over time. While we acknowledge that a return to “normal” profitability will take a few years, we believe the stock is trading at a depressed multiple of depressed earnings and for a significant discount to both the broader market and the companies’ own trading history. With its unmatched scale, diversification across end markets, and track record of disciplined underwriting and capital allocation, we believe that over time, the market will once again recognize Elevance as a high-quality franchise with above average growth characteristics.
GE HealthCare Technologies (GEHC) is a leading global medical technology company that was spun off from GE in January 2023. As a standalone company, we expect GE HealthCare to benefit from increased focus, better aligned management and incentives, and an improved corporate culture. We believe this will help drive higher margins and sustainably higher organic growth over time. Additionally, we believe GE HealthCare is well-positioned to capitalize on technology trends in healthcare as an increasing portion of the value proposition comes from artificial intelligence-enabled software, as well as a shift towards precision care. In our view, investors have a stale perception of GE HealthCare and haven’t given the company credit for significant self-help potential or the improving long-term industry outlook. This, combined with excessive short-term concerns around weak industry demand in China, provided us with the opportunity to purchase shares at a discounted valuation to other quality medical technology companies.
Keurig Dr Pepper (KDP) is one of North America’s leading beverage companies, with dominant positions in single-serve coffee and flavored soft drinks. The soft drink portfolio has an enviable track record of volume growth and market share gains. We believe this strong performance can continue well into the future thanks to favorable demographic trends, brand strength, and its unique distribution network. Recently, the stock price came under pressure due to fundamental weakness in the Keurig coffee division. At-home coffee consumption normalized as people returned to work, while price hikes are also weighing on demand. We believe these industry-wide challenges will prove transitory, as coffee remains a popular beverage across demographics. Keurig is poised to capitalize on this demand with the largest installed base of single-serve brewers and ample runway to further increase household penetration. At the current quote, the market ascribes minimal value to Keurig. We were happy to purchase shares in this above-average business that is trading at a discount to the market, other beverage peers and private market transactions.
The Carlyle Group (CG) is one of the largest global alternative asset managers and is particularly well regarded for its private equity franchise. Compared to peers, the firm over-indexes to private equity, which is considered to be a relatively mature industry vertical, and under-indexes to faster growing verticals like private credit. This has caused Carlyle’s share price to lag its competitors. However, we believe Carlyle’s new management team is taking the right steps to continue expanding the firm’s platform beyond its private equity roots and see this as an opportunity to accelerate organic growth. Further, we believe Carlyle’s brand and distribution capabilities position the firm especially well for growth in the retail channel, where allocations to alternatives are expected to expand significantly in the coming years. Despite the firm’s attractive and improving outlook, Carlyle trades at less than half the P/E of its peer group and at a meaningful discount to other financials with a comparable growth profile.
We eliminated the following position(s) during the period:
Altria (MO)
eBay (EBAY)
Goldman Sachs (GS)
Salesforce
Truist Financial (TFC)
Walt Disney (DIS)
OUTLOOK
As we look forward to 2025, we note that the spread between growth and value remains especially wide relative to history, both in US and international markets. Given this, we believe that it’s an unusually attractive time to be a value investor. This growth-led market environment has afforded us an excellent opportunity to build very well-diversified portfolios in companies trading at significantly lower than average valuations across a variety of industries. We remain optimistic about the positioning, strength and depth of opportunity set as we continue to find high-quality businesses trading at bargain prices.
Past performance is no guarantee of future results. The investment return and principal value of this portfolio and any particular holdings may fluctuate. Portfolio holdings are subject to change without notice.
The specific securities identified and described in this report do not represent all the securities purchased, sold, or recommended to advisory clients. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time one receives this report or that securities sold have not been repurchased. It should not be assumed that any of the securities, transactions, or holdings discussed herein were or will prove to be profitable.
The information, data, analyses, and opinions presented herein (including current investment themes, the portfolio managers’ research and investment process, and portfolio characteristics) are for informational purposes only and represent the investments and views of the portfolio managers and Harris Associates L.P. as of the date written and are subject to change without notice. This content is not a recommendation of or an offer to buy or sell a security and is not warranted to be correct, complete or accurate. Data is in terms of U.S. dollars unless otherwise indicated.
Certain comments herein are based on current expectations and are considered “forward-looking statements”. These forward-looking statements reflect assumptions and analyses made by the portfolio managers and Harris Associates L.P. based on their experience and perception of historical trends, current conditions, expected future developments, and other factors they believe are relevant. Actual future results are subject to a number of investment and other risks and may prove to be different from expectations. Readers are cautioned not to place undue reliance on the forward-looking statements.
The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000® companies with lower price-to-book ratios and lower expected growth values. This index is unmanaged and investors cannot invest directly in this index.
Oakmark U.S. Large Value Strategy Q4 2024 Commentary
skodonnell/iStock via Getty Images
MARKET ENVIRONMENT
U.S. equities finished higher during the quarter with 4 of 11 GICS sectors posting positive returns. By sector, information technology and consumer discretionary contributed the most to market returns, while health care and materials were the biggest detractors.
PORTFOLIO PERFORMANCE
The portfolio’s return was 2.03% (net) for the reporting period. This compares to the Russell 1000 Value Index that returned -1.98% for the same period.
Top contributors:
Wells Fargo was a contributor during the quarter. The U.S.-headquartered diversified bank’s stock price rose after reporting what we see as solid third-quarter earnings where the company’s efficiency ratio continued to improve as expenses were well controlled. The fee income segment also performed well, growing 12%. In addition, Wells Fargo had the opportunity to repurchase $3.5 billion in shares during the period, bringing the full-year repurchase to roughly $16 billion. In November, the stock price continued its upward trend following the U.S. presidential election as investors are optimistic that the financials sector will benefit from looser regulations and lower corporate taxes, thus stimulating a better environment for dealmaking. We continue to believe that Wells Fargo is a competitively advantaged bank that can use its superior business mix and return potential to unlock further value.
Salesforce was a contributor during the quarter. The U.S.-headquartered application software company’s stock price rose following the release of third-quarter earnings where metrics were strong across the board. Revenue modestly outperformed consensus expectations and management increased the low end of its guidance for the year. In addition, margins continued to expand and Salesforce (CRM) launched its new AI-based product Agentforce, which closed 200 deals in its first week with several Fortune 500 companies as early adopters. We appreciate the company’s strong competitive position and management’s commitment to maximizing shareholder value. General Motors was a contributor during the quarter. The U.S.-headquartered automobile manufacturer’s stock price rose aided by solid third-quarter results and increased full-year guidance for adjusted earnings before interest and tax (EBIT), earnings per share and free cash flow. The company repurchased USD 1 billion in stock during the quarter and suggested the pace of repurchase will increase near term. General Motors also issued better than expected initial 2025 guidance that calls for adjusted EBIT to come in a similar range to 2024. We believe the company is well-positioned to compete in an evolving auto industry, is significantly undervalued, and that per share value is being enhanced as the company continues to repurchase shares at a significant discount to our estimate of intrinsic value.
Top detractors:
PORTFOLIO POSITIONING
We initiated the following position(s) during the period:
We eliminated the following position(s) during the period:
OUTLOOK
As we look forward to 2025, we note that the spread between growth and value remains especially wide relative to history, both in US and international markets. Given this, we believe that it’s an unusually attractive time to be a value investor. This growth-led market environment has afforded us an excellent opportunity to build very well-diversified portfolios in companies trading at significantly lower than average valuations across a variety of industries. We remain optimistic about the positioning, strength and depth of opportunity set as we continue to find high-quality businesses trading at bargain prices.
Past performance is no guarantee of future results. The investment return and principal value of this portfolio and any particular holdings may fluctuate. Portfolio holdings are subject to change without notice.
The specific securities identified and described in this report do not represent all the securities purchased, sold, or recommended to advisory clients. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time one receives this report or that securities sold have not been repurchased. It should not be assumed that any of the securities, transactions, or holdings discussed herein were or will prove to be profitable.
The information, data, analyses, and opinions presented herein (including current investment themes, the portfolio managers’ research and investment process, and portfolio characteristics) are for informational purposes only and represent the investments and views of the portfolio managers and Harris Associates L.P. as of the date written and are subject to change without notice. This content is not a recommendation of or an offer to buy or sell a security and is not warranted to be correct, complete or accurate. Data is in terms of U.S. dollars unless otherwise indicated.
Certain comments herein are based on current expectations and are considered “forward-looking statements”. These forward-looking statements reflect assumptions and analyses made by the portfolio managers and Harris Associates L.P. based on their experience and perception of historical trends, current conditions, expected future developments, and other factors they believe are relevant. Actual future results are subject to a number of investment and other risks and may prove to be different from expectations. Readers are cautioned not to place undue reliance on the forward-looking statements.
The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000® companies with lower price-to-book ratios and lower expected growth values. This index is unmanaged and investors cannot invest directly in this index.
©2025 Harris Associates L.P. All rights reserved.
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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