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Stocks That Are Cheaper Than When Don Yacktman Bought: RIMM, AVP, JNS, BK, BCR
Posted by: Federico F (IP Logged)
Date: December 15, 2011 11:44AM
Donald Yacktman is Yacktman Asset Management Co.’s president and so-chief investment officer. He also co-manages The Yacktman Funds. Prior to founding the firm in April, 1992, Mr. Yacktman served for 10 years as the senior portfolio manager of Selected Financial Services Inc.
The company’s prospectus states: “Our investment adviser employs a disciplined investment strategy. We buy growth companies at what we believe to be low prices. We think this approach combines the best features of 'growth' and 'value' investing.”
When buying stock Yacktman and his team consider the following issues:
For a company to be considered a good business, it must have one or more of the following:
- High market share in principal product and/or service lines;
- A high cash return on tangible assets;
- Relatively low capital requirements allowing a business to generate cash while growing;
-Short customer repurchases cycles and long product cycles;
- Unique franchise characteristics.
Management must wisely allocate the earnings it generates and do not profit from them. Yacktman generally looks for companies that:
- Reinvest in the business and still have excess cash;
-Make synergistic acquisitions;
-Buy back stock.
Low Purchase Price
In Yacktman Asset Management Co. they want companies that:
-Have stock that sells for less than what an investor would pay to buy the whole company.
-Have stock with prices that vary 50% or more from low to high each year.
They wait for investment opportunities. Donald Yacktman thinks that patience is the key that generates attractive buy prices for any investment.
The Yacktman Focused Fund tends to hold fewer than 25 stocks. They believe it is worth investing in top choices rather than investing in less attractive businesses.
I found interesting stocks that I could buy for less than Yacktman recently paid.
Research In Motion Ltd. (RIMM) designs and markets wireless handsets, software and services. Its revenue is driven by the sale of handsets to carriers worldwide that promote the company's BlackBerry line of devices. In addition, RIMM generates access service fees from carriers for each BlackBerry subscriber.
RIMM’s balance sheet is strong, with $1.4 billion in cash and investments against no debt. It shipped approximately 10.6 million smartphones in the second quarter, and the BlackBerry subscriber base is now over 70 million. RIMM revenue was approximately $4.2 billion, and service revenues surpassed $1 billion for the first time in RIMM's history. Sell-through of BlackBerry smartphones in the second quarter was the second highest ever at 13.7 million.
As we can see, Yacktman increased his position with an average price of $20.
Avon Products Inc. (AVP): Avon is a multilevel marketing company selling products in more than 60 countries and territories. Avon's product mix consists of beauty, fashion and home. International sales account for about 80% of the firm's consolidated total.
At the end of fiscal 2010, the debt/capital ratio stood at 0.65, while operating income covered interest expense increased more than 12 times. While its trailing P/E ratio is 11.1, the stock has a five-year average of 23.8. The company has great upside potential. Avon was trading at $19, significantly lower than its estimated fair value range of $26.44 to $30.89. Its price to book sales ratio of 0.72 is also below the market average of 1.8. The stock has at least 40% upside potential to be fairly priced.
Don Yacktman initiated a position in the low $20s
Janus Capital Group Inc. (JNS) provides investment management services to individual and institutional investors. It operates through its three main subsidiaries: Janus, which focuses on growth-driven equity and fixed-income strategies; INTECH, which offers mathematically driven equity strategies; and Perkins, which focuses on value-driven equity strategies. At the end of June 2011, equity represented 90%, fixed-income 10% and money market funds.
Furthermore, in 2010, Janus had $800 million in debt. It could repay $121 million and has already banked the $92 million it needs to pay off obligations.
Janus recently increased its quarterly dividend to $0.05 per share from $0.01. Also the company plans to use future cash flows to reinvest in the business, repurchase shares and pay down debt as it comes due.
Yacktman got very interested in JNS when the stock broke the $10s level and initiated a position near that price.
Bank of New York Mellon (BK): BK was the result of the merger of Mellon Financial and Bank of New York. It is one of the world's largest financial services companies and a leader in providing back-office services to other financial firms.
BNY Mellon is financially healthy. As a matter of fact, it is the highest rated U.S. bank and one of the highest rated financial institutions in the world with a AA- rating from S&P.
Yacktman kept buying the stock and started accumulating more shares when BK went to the low $20 level. He is sure that in the current prices, BK is severely undervalued.
C.R. Bard Inc. (BCR) develops and markets medical devices worldwide. Its products include disposables and implantable devices for vascular, urology and oncology procedures.
As of September 2010, the firm held $662 million in cash. The firm issued $750 million in notes in December, bringing its debt total to $900 million. The company can use free cash flow to pay off its debt when due. Meanwhile, the firm will use its cash to fund a repurchase program and dividends.
Yacktman started buying BCR in the first quarter of 2010 and kept buying every quarter. I will pay attention to this company because there must be some specifics that made Yacktman bought the stock even when BCR was in an uptrend.
Re Stocks That Are Cheaper Than When Don Yacktman Bought RIMM AVP JNS BK BCR
Posted by: tkervin (IP Logged)
Date: December 15, 2011 08:48PM
Or you could be following him into positions he will highlight in the future as his great errors. Always a tough call. My guess is this list is a mix of opportunity and value traps.
Any RIMM Bulls wish to weigh in?