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According to David Herro, chief investment officer for international equities at Harris Associates, there is a “value gap” in European markets, and this creates a unique opportunity for investors to buy top-notch financial and industrial companies at a bargain price. “When you look at valuations — and that’s what we do as long-term value investors — the value hunt really kicks off in Europe because the market sold pretty aggressively last year,” the value investor told Squawk on the Street on CNBC. on Tuesday. European markets fell sharply last year as fears of a war in Ukraine intensified, energy prices rose and China’s economy struggled. But even as share prices fell, profits continued to rise, revealing that Herro calls the value gap. Many of these companies are now trading at low prices – and cheaper than in the US – but must continue to increase their profits and cash flow growth. “That’s why we find opportunities, because companies continue to make money, and now we are seeing a drop in energy prices in Europe and a reopening of the Chinese economy,” he said. When it comes to international markets, Herro has the authority to support this type of declaration. According to Morningstar, he has managed the Oakmark International Investor fund for more than three decades with a solid 15-year track record with an annual return of 5.7% The fund is up 14% this year OAKIX YTD Mountain Fund already up about 14% in 2023. One of the dominant sectors in the portfolio that Herro dominates is European financial stocks. He expects the sector to benefit from a “triple positive” rate hike, an improving European economy and a strong capital position. “Virtually every major financial company in Europe has been recapitalized and is distributing that money back to shareholders,” Herro told CNBC. Herro has singled out Allianz, Intesa Sanpaolo, BNP Paribas and Lloyds Banking Group as some of the blue chips he’s betting on. At the end of December, these shares comprised some of Oakmark International’s core assets, according to Morningstar. The fund manager also sees value in automakers such as Mercedes Benz and BMW, which offer free cash flow returns of 13% to 14%, trade up to four times cash flow, and offer solid cash on their balance sheets to protect their business during the period. economic downturn. . A diversified business model with operations and customers in Asia and North America also positions these companies well. “By the way, they learned a little lesson during the pandemic,” he said. “You just don’t spit out volumes for the sake of volumes because they have learned to protect their profits.” — Michael Bloom of CNBC provided the coverage.
Credit: www.cnbc.com /
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