Shannon Zimmerman: For Morningstar, I am Shannon Zimmerman here today with Bill Nygren of the Oakmark Funds. One company that is prominently represented in each of your portfolios is Medtronic, a top 10 position at Global Select and at Select, and then also a big position at Oakmark, too, where it's also in the top 10 there. As the dust settles on the election, irrespective of the outcome of the election, what do you think the impact might be on the company like Medtronic?
Bill Nygren: Well, first, I would guess most investors are going to be as happy as I am to have an end to the endless commercials and telephone calls that we’ve all been receiving over the past few months.
Zimmerman: I think that’s right.
Nygren: But when it comes down to how we at Oakmark think about investing, we’re looking for something like a five- to seven-year time frame. The outcome of [the recent] election is unlikely to be a big mover of what we think any of the businesses that we own are worth. And I know health care has been an area that there have been important differences between the presidential candidates. But you have one candidate that's trying to increase access to the health-care system, which probably means slightly higher revenues, slightly lower margins.
And relative to the other candidate, I'm not sure it makes that much difference in the profitability of the companies. We basically own something like Medtronic because it’s at a relatively low multiple. We think it's got a good growth rate, and we think Medtronic has been one of the leaders at showing the economic benefits of its products.
Zimmerman: In terms of our data, what we show is that the last time Medtronic entered Oakmark Select's portfolio, it was December 2008, which was a pretty wild-and-woolly time for the stock market. Can you give us a sense of what were the dominant themes of the conversations that you were having in the research meetings around Medtronic, and how much airtime, if any, did regulatory or political risk take in those discussions?
Nygren: I think one of the things that drives our discussions at a firm that's as value-oriented as Oakmark is stock-price valuation. I think investors tend to be concerned and very attuned to risks of a broad array of outcomes from companies, and that was especially the concern in the health-care companies three or four years ago with the change in the health-care legislation. But I think the part that investors probably don't pay as much attention to as they should is the price that they're paying, and we think price is just as important if not a more important factor for risk as the potential business outcomes.
So with a company like Medtronic, it had a strong above-average growth rate. The company had done a good job in making acquisitions and bringing out new products. And it used to sell at 20, 30 times earnings. Back in 2008, it got down to a single-digit P/E multiple. At that price, we thought there was a lot of room for some of the negative outcomes to modestly affect Medtronic's fundamental outlook, but they still wouldn’t be negative for the stock because the starting price was so cheap.
And we continue to feel that way about Medtronic today. Today, the company is allocating more of its capital to share repurchases. We think that’s a risk reducer for shareholders. Additionally, the low P/E multiple continues, and we think the business outlook is just as good for Medtronic as it was four years ago.