“The problem is growth usually comes at a price the value investor isn’t willing to pay,” Nygren, 59, said in a telephone interview from his Chicago office.
Bank Boost
The money manager also makes more classic value investments. Key holdings Citigroup Inc. and Bank of America Corp. boosted returns in 2017. Still, Nygren sees no reason a value investor can’t own fast-growing companies.
The trick can be figuring out what you’re paying. Alphabet’s P-E ratio is misleading, Nygren said, because the tech giant has businesses that lose money, including the Waymo autonomous-driving unit, or may be marginally profitable, like video operation YouTube. Those divisions can crimp current earnings but carry significant value because of their potential.
“When you dig deeper you can easily conclude that the stock market is not pricing Alphabet as the excellent business we believe it is,” Nygren said.
His reason for owning Netflix is different. Nygren passed on the streaming company in 2011 because he saw its future as too uncertain. When one of his analysts recommended the stock in 2017, he remained skeptical. Nygren changed his mind after concluding that Netflix’s strategy of keeping subscription prices low at $11 a month hurts profitability but allows it to grow faster.
‘Perfectly Amenable’
“We are perfectly amenable to Netflix’s decision to forfeit current income to rapidly increase scale,” Nygren wrote in Sept. 30 letter to fund holders.
Proving value is in the eye of the beholder, Browne at Santa Fe, New Mexico-based Thornburg Investment Management has owned Netflix in the past but deems it too pricey now.
“We’d love it if they stumbled and gave us another chance to invest,” he said.