- Value-investing legend Bill Nygren says the S&P 500 lacks the diversification it once had.
- He likes to invest in inexpensive companies with enough capital on hand to consistently buy back shares.
The S&P 500 isn't as risk-free as investors might think, says Oakmark Funds' Bill Nygren, who lamented the S&P 500's growing lack of diversification.
Rather than buy the mega-cap tech stocks that dominate major indexes, the value-investing legend told CNBC he's instead focused on inexpensive companies with ample cash on hand to consistently buy back shares.
"It's become so important to us that we invest with companies that are taking matters into their own hands and using excess capital to repurchase their own stock," Nygren told the outlet on Monday.
One stock he pinpointed that fits the bill is Corebridge Financial.
While the stock is currently trading around $28 a share, Nygren sees it almost doubling is book value 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 stock each year, a practice that generally engineers gains by increasing the per-unit value of each remaining share.
"It's a name not many people know about," Nygren said of the firm. "They don't have to depend 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, generating a lot of cash flow, and it gives them the opportunity to increase per share value by reinvesting in themselves."