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Value investing legend Bill Nygren says the S&P 500 lacks the diversification it once had.
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He likes to invest in cheap companies with enough capital available to be able to constantly buy back shares.
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Nygren mentioned Corebridge Financial as one of his top choices that meets all of his requirements.
The S&P 500 is not as risk-free as investors might think, says Bill Nygren of Oakmark Funds, who lamented the S&P 500’s growing lack of diversification.
Instead of buying large-cap tech stocks that dominate major indexes, the value investing legend told CNBC he has focused on inexpensive companies with enough cash on hand to consistently buy back shares.
“It’s become so important to us that we invest in companies that take matters into their own hands and use excess capital to buy back their own shares,” Nygren told the outlet on Monday.
One stock he said fits his needs is Corebridge Financial.
While the stock is currently trading around $28 per share, Nygren thinks its book value will nearly double to $50 by the end of 2025, or roughly four to five times earnings. He also predicts Corebridge could buy back up to 20% of its outstanding shares each year, a practice that typically generates profits by increasing the unit value of each remaining share.
“It’s a name that not a lot of people know,” Nygren said of the firm. “They don’t have to rely on other investors to recognize the value. They just keep reducing the flow.”
He continued: “I think it just creates a tremendous opportunity for companies that are good businesses, that generate a lot of cash flow, and gives them the opportunity to increase share value by reinvesting in themselves.”
Read the original article on Business Insider