Howard Marks is an influential investor who has a ton of wisdom to share with the average retail investor. Whether we’re talking about his memos, books, or televised interviews, the man seems to be all about not only increasing the reward side of the risk/reward trade-off, but also decreasing the risk side.
As a huge fan of Marks’ works and his prudent investment strategy, which I think can resonate well with cautious optimists who don’t want to neglect playing defense in late-stage markets or simply markets that are too hyped with valuations at the higher end, I think his firm, Oaktree Capital Management, is more than worth following closely on any given quarter.
Let’s check in on two great stock picks that Marks’ and his team picked up in the third quarter.
Nu Holdings
Oaktree started a new position in Latin American fintech firm Nu Holdings (NYSE:NU | NU Price Prediction) in the third quarter, reportedly worth around $72 million. Undoubtedly, the name represents a relatively small (just over 1.5%) portion of the overall portfolio, but, nonetheless, the move was quite remarkable, not only because of the international growth potential or the modest valuation, but because Nu is a former Warren Buffett stock. Though it is worth noting that Berkshire Hathaway (NYSE:BRK-B) has since exited its stake.
For investors seeking emerging markets growth, solid managers, and a fairly wide, underrated economic moat, it’s tough to overlook Nu Holdings. After a strong third-quarter number that saw considerable earnings growth, and a total addressable market that’s quite massive as the firm expands across Latin America, the 19.8 times forward price-to-earnings (P/E) multiple makes Nu Holdings look like one of the “Garpiest” stocks on the market.
I think Oaktree is right on the money with this name, even as shares stall at around new highs. For value investors, it’s more about the price of admission and fundamentals than how far away (or close) a stock is to its all-time highs.
Sea Limited
Sea Limited (NYSE:SE) is another very interesting Q3 pick-up for Oaktree. It’s another play on the emerging markets, which not only provides greater diversification for a portfolio, but potentially more growth potential. The internet firm, which mostly serves Southeast Asia, has a similar story to that of Nu Holdings.
Apart from providing fintech services through SeaMoney, Sea is also big on the e-commerce scene within its regions of operation, with Shopee, as well as a robust digital entertainment business with Garena.
Sea seems like a diversified way to bet on a market that could support high growth rates for the long haul. With shares down over 30% from 52-week highs, value investors might wish to give the name a second look as others flee over a tough quarterly showing. At 33.5 times forward P/E, shares still might not look cheap, but for those willing to average down, I’d not be afraid to buy the dip.
For the most part, Sea Limited looks like more of a fallen growth play than a traditional value play. However, for investors looking for greater international exposure, getting a fair price on a premier grower after an overblown quarter might be a good move.
While falling EBITDA margins over at Shopee are never encouraging, much of the pressures seem to have stemmed from infrastructure investments that will pay off at some point down the road. At the end of the day, Shopee is a dominant force in Southeast Asia, and every investment it makes, I think, widens its moat by that much more.
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