Causeway Capital Management, the Los Angeles-based firm founded by Sarah Ketterer (Trades, Portfolio) and Harry Hartford in 2001, seeks to achieve superior risk-adjusted returns by investing in mispriced equities in both developed as well as emerging markets.
Using quantitative and value-oriented methods, the guru and her team look for potential investment opportunities among mid- and large-cap companies. Each stock also receives a risk score based on the additional volatility or risk it adds to the portfolio. The investment team then enters positions in the stocks with the highest expected risk-adjusted return that also have a lower price-earnings ratio and higher dividend yield than the market.
As of the end of the fourth quarter of 2021, the industrials sector had the second-largest representation in Ketterer’s $4.5 billion 13F equity portfolio with a weight of 22.73%. Investors should be aware that 13F filings do not give a complete picture of a guru’s holdings; they only consider the U.S.-based holdings and American depository receipts. Regardless, they can still provide valuable information.
Further, the industrials space may offer value opportunities currently as the sector has fallen 4.94% year to date on the back of higher inflation, supply chain constraints and uncertainty surrounding the war in Ukraine.
According to GuruFocus portfolio data, Ketterer’s five largest industrials holdings as of the three months ended Dec. 31 were Ryanair Holdings PLC (RYAAY, Financial), Canadian National Railway Co. (CNI, Financial), General Electric Co. (GE, Financial), Waste Management Inc. (WM, Financial) and Carrier Global Corp. (CARR, Financial).
Ryanair Holdings
In the fourth quarter, Ketterer boosted her stake in Ryanair Holdings (RYAAY, Financial) by 3.84% to 5.02 million shares. The position accounts for 12.12% of the equity portfolio and is the largest holding overall. GuruFocus estimates she has gained 29.28% on the investment since establishing it in the third quarter of 2016.
The Irish airline, which is a low-cost carrier operating predominately in secondary airports, has a $19.53 billion market cap; its shares were trading around $86.64 on Friday with a price-book ratio of 3.2 and a price-sales ratio of 4.23.
The GF Value Line suggests the stock is significantly overvalued currently based on its historical ratios, past financial performance and future earnings projections.
GuruFocus has not rated Ryanair’s financial strength or profitability. The company has been issuing new long-term debt over the past several years, however, and the Altman Z-Score of 1.78 warns it could be at risk of bankruptcy if it does not improve its leverage.
The company is also being weighed down by negative margins and returns on equity, assets and capital that underperform a majority of competitors. The moderate Piotroski F-Score of 6 out of 9, however, indicates operations are typical for a stable company. Even though it has recorded declines in revenue per share and losses in operating income over the past several years, Ryanair has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Ryanair, Baillie Gifford (Trades, Portfolio) has the largest stake with 4.69% of its outstanding shares. David Herro (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, the Causeway International Value (Trades, Portfolio) Fund, PRIMECAP Management (Trades, Portfolio), Julian Robertson (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and Francis Chou (Trades, Portfolio) also have positions in the stock.
Canadian National Railway
The guru established a position in Canadian National Railway (CNI, Financial) during the quarter, buying 1.79 million shares. With a weight of 4.37% in the equity portfolio, it is now her third-largest position.
The Canadian railroad company, which provides freight services in Canada and parts of the U.S., has a market cap of $89.66 billion; its shares were trading around $129.64 on Friday with a price-earnings ratio of 23.75, a price-book ratio of 5.05 and a price-sales ratio of 8.03.
According to the GF Value Line, the stock is modestly overvalued currently.
Canadian National’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued new long-term debt in recent years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 4 also indicates it is in good standing. The return on invested capital overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s profitability fared even better, scoring a 10 out of 10 rating. Even though its margins are in decline, returns outperform over half of its industry peers. Canadian National is also supported by a high Piotroski F-Score of 9, indicating business conditions are healthy. Consistent earnings and revenue growth have also contributed to a 3.5-star predictability rank. GuruFocus says companies with this rank return an average of 9.3% annually.
With a 1.87% stake, Bill Gates (Trades, Portfolio)’ foundation trust has the largest stake in Canadian National. Other top guru investors include Simons’ firm, Steven Cohen (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio).
General Electric
The investor upped her General Electric (GE, Financial) stake by 53.38% during the quarter. She now holds 1.53 million shares, which represent 3.19% of the equity portfolio and is her fifth-largest holding. GuruFocus data shows she has lost an estimated 9.66% on the investment since establishing it in the third quarter of 2021.
The enduring industrial conglomerate headquartered in Boston, which recently announced it will be splitting into three separate companies, has a $104.26 billion market cap; its shares were trading around $94.73 on Friday with a price-book ratio of 2.58 and a price-sales ratio of 1.41.
Based on the GF Value Line, the stock appears to be significantly overvalued currently.
General Electric’s financial strength and profitability were both rated 5 out of 10 by GuruFocus. In addition to weak interest coverage, the Altman Z-Score of 1.43 warns the company could be in danger of going bankrupt. The WACC also eclipses the ROIC, indicating the company is struggling to create value as it grows.
The company is being weighed down by margins and returns that underperform a majority of competitors, but has a moderate Piotroski F-Score of 5. The one-star predictability rank is also on watch as a result of declining revenue per share.
Andreas Halvorsen (Trades, Portfolio) has the largest stake in General Electric with 1.64% of its outstanding shares. Hotchkis & Wiley, Richard Pzena (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Nelson Peltz (Trades, Portfolio), Mason Hawkins (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and Simons’ firm also have significant positions in the stock.
Waste Management
Ketterer increased her Waste Management (WM, Financial) holding by 25.51% in the most recent quarter. Representing 1.63% of the equity portfolio, she now owns 443,758 shares total. GuruFocus says she has gained an estimated 12.64% on the investment so far.
The Houston-based company, which provides traditional waste management and recycling services, has a market cap of $64.19 billion; its shares were trading around $154.76 on Friday with a price-earnings ratio of 36, a price-book ratio of 9.04 and a price-sales ratio of 3.65.
The GF Value Line suggests the stock is fairly valued currently.
GuruFocus rated Waste Management’s financial strength 4 out of 10. Despite the company issuing new long-term debt over the past several years, it is at a manageable level due to sufficient interest coverage. The high Altman Z –Score of 3.22 also indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. Value creation is occurring since the ROIC exceeds the WACC.
The company’s profitability fared better with a 9 out of 10 rating. While the operating margin is in decline, returns top a majority of industry peers. Waste Management is also supported by a high Piotroski F-Score of 7. Due to consistent earnings and revenue growth, it also has a 2.5-star predictability rank. GuruFocus data shows companies with this rank return, on average, 7.3% annually.
Of the gurus invested in Waste Management, Gates’ foundation trust has the largest stake with 4.45% of its outstanding shares. Addition guru investors are Mario Gabelli (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Dalio, Simons’ firm, Joel Greenblatt (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Jeff Auxier (Trades, Portfolio).
Carrier Global
The guru added 0.15% to her Carrier Global (CARR, Financial) stake to 1.14 million shares. The stock represents 1.36% of the equity portfolio. GuruFocus data shows Ketterer has gained an estimated 31.01% on the investment since establishing it in the fourth quarter of 2020.
Headquartered in Florida, the HVAC company, which was spun off of United Technologies Corp. in 2020, has a $40.11 billion market cap; its shares were trading around $47.10 on Friday with a price-earnings ratio of 25.14, a price-book ratio of 5.99 and a price-sales ratio of 2.04.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overvalued.
Carrier’s financial strength and profitability were both rated 5 out of 10 by GuruFocus. Although the company has issued new long-term debt recently, it is at a manageable level as a result of adequate interest coverage. The Altman Z-Score of 2.77, however, indicates it is under some pressure. The ROIC also surpasses the WACC, so value is being created.
The company is supported by strong margins and returns that outperform a majority of competitors as well as a high Piotroski F-Score of 7.
With a 2.3% stake, Dodge & Cox is Carrier’s largest guru shareholder. Other top guru investors include Primecap, Diamond Hill Capital (Trades, Portfolio), Simons’ firm and Fisher.
Additional holdings in the industrials space
Other stocks Ketterer owns in the industrials sector as of the end of the fourth quarter are Azul SA (AZUL, Financial), ZIM Integrated Shipping Services Ltd. (ZIM, Financial) and ABB Ltd. (ABB, Financial).
