A move targeted by a value investing legend in a market he says has become too tough

• Value investing legend Bill Nygren says the S&P 500 doesn’t have the diversification it once had.

• He likes to invest in cheap companies with enough capital on hand to constantly buy stock.

• Nygren cited Corebridge Financial as a top choice that checks all of its boxes.

The S&P 500 isn’t 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 the mega-cap tech stocks that dominate the major indexes, the value investing legend told CNBC that he’s instead focusing on cheap companies with enough cash on hand to consistently buy back shares.

“It’s become so important to us that we invest with companies that take matters into their own hands and use excess capital to buy back their own shares,” Nygren said Monday.

One of the stocks he identified that fits is Corebridge Financial.

While the stock is currently trading around $28 a share, Nygren sees a near doubling of book value to $50 by the end of 2025, or about four or five times earnings. He also predicts that Corebridge could buy back up to 20 percent of its outstanding stock each year, a practice that engineers generally earn by increasing the per-unit value of each remaining share.

“It’s a name that a lot of people don’t know,” Nygren said of the firm. “They don’t have to depend on other investors to recognize value. They just keep cutting 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 grow their value per share by reinvesting in themselves.”

Read the original article on Business Insider