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According to value investing legend Bill Nygren, the S&P 500 lacks the diversification it once had.
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He likes to invest in cheap companies that have enough capital to consistently buy back their own shares.
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Nygren named Corebridge Financial as a top choice that meets all of his requirements.
The S&P 500 isn’t as risk-free as investors might think, says Bill Nygren of Oakmark Funds, who laments the S&P 500’s increasing lack of diversification.
Rather than buying the mega-cap tech stocks that dominate the major indexes, the legendary value investor told CNBC he’s focusing on cheap companies with enough cash to consistently buy back their own shares.
“It’s become so important to us that we invest in companies that are taking matters into their own hands and using excess capital to buy back their own shares,” Nygren told the outlet on Monday.
One stock he believes qualifies is Corebridge Financial.
While the stock currently trades around $28 a share, Nygren expects its book value to nearly double to $50 by the end of 2025, or about four or five times earnings. He also predicts that Corebridge could buy back as much as 20% of its outstanding shares annually, a practice that typically generates profits by increasing the unit value of each remaining share.
“It’s a name that not many people know,” Nygren said of the company. “They don’t have to rely on other investors to recognize the value. They just keep reducing the float.”
He continued: “I think it just creates a tremendous opportunity for companies that are doing well, that are generating a lot of cash flow and it gives them the opportunity to increase value per share by reinvesting in themselves.”
Read the original article on Business Insider
