Many of Wall Street's greatest investors seem to agree: Now is a great time to buy stocks.
Warren Buffett has opined that stocks are a better buy than bonds these days. Legg Mason's Bill Miller, famous for the 15-year streak in which he beat the S&P 500, is also bullish, arguing that large caps now present the investment opportunity of a lifetime.
Now Bill Nygren, co-manager of several high-performing Oakmark mutual funds, has joined that chorus. His Oakmark I (OAKMX) fund has placed in the top 10% of funds in its category over the past three, five, and 10 years. Over the past decade, it ranks in the top 2%!
Growing dividends and buybacks
In his third-quarter commentary to shareholders, Nygren shook his head at investors plowing money into bonds while withdrawing from stock funds. "We continue to believe that equities are attractively priced," he wrote, "and are highly likely to dominate returns from more popular assets such as fixed income."
He goes on to explain that many investors look only at companies' income statements, and see sales grow too slowly, if at all. But they're missing all the mighty heaps of cash that many companies have been accumulating. Nygren expects to see rising dividend payments and heightened share repurchases, both of which can benefit shareholders significantly.
Meet Nygren's holdings
A peek into his Oakmark I fund reveals a few good examples for Nygren's argument. Fund holding Intel (Nasdaq: INTC) has seen its cash, short-term investments, and trading assets soar from $13.9 billion at the beginning of the year to $20.8 billion in September. It sports a 3.1% dividend yield, and it's been hiking its dividend at a rate of close to 17% annually over the past five years. With a payout ratio of just 33%, Intel still has plenty of room to keep increasing that payout substantially.
Similarly, fellow holding Texas Instruments (NYSE: TXN) now yields around 1.8%. But it's been increasing that payout by 37% annually since 2005, and it sports just a 20% payout ratio. Oracle (Nasdaq: ORCL) is a position Nygren has been adding to for several quarters, very likely lured at least in part by its growing cash hoard. The database maven's cash and short-term investments totaled $23.6 billion in August, and the company has just started paying a dividend in early 2009. All of these companies have also been buying back shares in recent years.
If you're looking for compelling stock ideas, you could do a lot worse than considering the strategies pursued by great investors.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Motley Fool Options has recommended buying calls on Intel, which is a Motley Fool Inside Value selection. The Fool has a bull call spread position on Cisco Systems. The Fool owns shares of Intel, Legg Mason, Oracle, and Texas Instruments. The Motley Fool is Fools writing for Fools.
