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The Top Stocks Warren Buffett and Donald Yacktman Both Own
Posted by: Holly LaFon (IP Logged)
Date: January 2, 2013 03:32PM

Warren Buffett and Donald Yacktman are two well-known long-term value investors. Both have also produced strong returns: 174.5% for Donald Yacktman and a 163.3% increase in book value of Warren Buffett’s company, Berkshire Hathaway (BRK.A)(BRK.B), cumulatively, compared to 34.9% for the S&P 500 over the past ten years.

Unsurprisingly, the two investors have been attracted to many of the same stocks. They have eleven in common, of which the largest are: Coca-Cola (KO), Wells Fargo (WFC) and American Express (AXP). Here's what they like about them.

Coca-Cola Co (KO)

Warren Buffett owns 400 million shares of KO, valued as $15.17 billion as of Sept. 30, 2012, which accounts for 20.1% of his equity portfolio. Donald Yacktman owns 13,473,621 shares of KO, valued as $511 million as of Sept. 30, 2012, which accounts for 3.1% of his equity portfolio.

The Coca-Cola Co. was incorporated in September 1919 under the laws of the State of Delaware. Coca-Cola has a market cap of $162.59 billion; its shares trade around $36.97 on Wednesday with a P/E ratio of 19.2 and P/S ratio of 3.6. The dividend yield of Coca-Cola stocks is 2.7%. Coca-Cola had an annual average earnings growth of 9.6% over the past 10 years. GuruFocus rated Coca-Cola the business predictability rank of 3.5-star.

Coke is Warren Buffett’s largest position. He began accumulating shares in 1988 for around $44 a share. Buffett has called himself “late to the party” with the company, but believes the company has enduring longevity. “Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today),” he wrote in his 2011 shareholder letter, “people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle.”

Buffett also commented in 1988 on the new purchase:

o In 1988 we made major purchases of Federal Home Loan Mortgage Pfd. (“Freddie Mac”) and Coca Cola. We expect to hold these securities for a long time. In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds. Our holdings of Freddie Mac are the maximum allowed by law, and are extensively described by Charlie in his letter. In our consolidated balance sheet these shares are carried at cost rather than market, since they are owned by Mutual Savings and Loan, a non-insurance subsidiary.

We continue to concentrate our investments in a very few companies that we try to understand well. There are only a handful of businesses about which we have strong long-term convictions. Therefore, when we find such a business, we want to participate in a meaningful way. We agree with Mae West: “Too much of a good thing can be wonderful.”

Coke comprises a far smaller portion of Donald Yacktman’s portfolio than Buffett’s, at 3.1% of the total. He commented on what he likes about the company in an interview with GuruFocus:

“We believe that companies that have low capital intensity and low cyclicality like Coke (KO) Pepsi (PEP), or Proctor & Gamble (PG) have the ability to earn some of the highest returns. What you’re looking for is both the low asset requirements and low cyclicality. It is at its best when a company sells a disposable product or a recurring service. We also like to see a large market share.”

Wells Fargo (WFC)

Warren Buffett owns 422,549,545 shares of WFC, valued as $14.59 billion as of Sept. 30, 2012, which accounts for 19.4% of his equity portfolio. Donald Yacktman owns 19,200 shares of WFC, valued as $1 million as of Sept. 30, 2012, which accounts for 0.004% of his equity portfolio.

Wells Fargo & Company is a corporation organized under the laws of Delaware and a financial holding company and a bank holding company registered under the Bank Holding Company Act of 1956, as amended.

Wells Fargo has a market cap of $179.93 billion; its shares trade around $34.91 on Wednesday, with a P/E ratio of 10.5 and P/S ratio of 2. The dividend yield of Wells Fargo stocks is 2.7%. Wells Fargo had an annual average earnings growth of 5.6% over the past 10 years. GuruFocus rated Wells Fargo the business predictability rank of 3-star.

Wells Fargo is Buffett’s second largest holding. He has said previously that his favorite metric for valuing a bank is earnings on assets – as long as the bank is earning them conservatively. Wells Fargo’s return on assets has been returning to their pre-financial crisis levels in recent years, evidenced in the graph below:



In the third quarter of 2012, Wells Fargo achieved six consecutive quarters of record net income and earnings per share. Additionally, its chief financial officer, Tim Sloan, said that the performance reflected its steady concentration on long-term metrics, such as ROA and ROE, as it improved its efficiency ratio of 57.1 percent, well within its target range of 55 to 59.

American Express (AXP)

Warren Buffett owns 151,610,700 shares of AXP, valued as $8.62 billion as of Sept. 30, 2012, which accounts for 11.4% of his equity portfolio. Donald Yacktman owns 246,500 shares of AXP, valued as $14 million as of Sept. 30, 2012, which accounts for 0.084% of his equity portfolio.

American Express was founded in 1850 as a joint stock association and was incorporated in 1965 as a New York corporation. American Express has a market cap of $64.32 billion; its shares on Monday traded for around $58.53 with a P/E ratio of 13 and P/S ratio of 2.2. The dividend yield of American Express stocks is 1.4%. American Express had an annual average earnings growth of 6.8% over the past 10 years. GuruFocus rated American Express the business predictability rank of 2.5-star.

Buffett began investing in American Express in the 1960s, starting with about $13 million. In the past 10 years its stock swelled 87.5%. Buffett noted it in his 2011 letter as among his large ownership interests in companies he called “exceptional:”

We view these holdings as partnership interests in wonderful businesses, not as marketable securities to be bought or sold based on their near-term prospects. Our share of their earnings, however, are far from fully reflected in our earnings; only the dividends we receive from these businesses show up in our financial reports. Over time, though, the undistributed earnings of these companies that are attributable to our ownership are of huge importance to us. That’s because they will be used in a variety of ways to increase future earnings and dividends of the investee. They may also be devoted to stock repurchases, which will increase our share of the company’s future earnings.

Buffett also said that he expected the earnings of the companies, including American Express, to increase in 2012 and many years into the future.

Yacktman has also made a sizable return on his relatively minor position in American Express. He established the position with about 400,000 shares he bought for about $23 a share on average. In subsequent quarters he primarily has been reducing the position as the price pushed to almost $58 a share.

For more stocks that several Gurus own in common, check out GuruFocus’ Aggregated Portfolio. It’s a GuruFocus Premium Feature. Subscribe now for a 15% New Year’s discount.




Guru Discussed: Warren Buffett: Current Portfolio, Stock Picks
Donald Yacktman: Current Portfolio, Stock Picks
Stocks Discussed: BRK.A, BRK.B, KO, WFC, AXP,
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