Investment Guru Donald Yacktman has published his 3Q10 Letter to his shareholders. During the quarter,
The Yacktman Focused Fund and The Yacktman Fund rose 10.29% and 10.1% respectively while the S&P 500 increased 11.29%. Year-to-date, The Yacktman Focused Fund has increased 5.02% and The Yacktman Fund has appreciated 5.32%, while the S&P 500 is up 3.89%.
If you judge his performance based on the short term, either for the quarter or YTD, you are making a mistake. Long term, Yacktman beat the benchmark hand down. During the past ten years, the Focus Fund returned 227.15% and the Yacktman Fund returned 220.73%.
In the late part of 2009, after the market run up, Yacktman has switched from more speculative issues to high quality stocks. He has stuck to the thesis ever since. In his own words in the letter:
Also in the letter, Yacktman presented his thoughts on a number of his top holdings:
Read his full letter here.
Check out Donald Yacktman’s complete stock portfolio by clicking on his name.
The Yacktman Focused Fund and The Yacktman Fund rose 10.29% and 10.1% respectively while the S&P 500 increased 11.29%. Year-to-date, The Yacktman Focused Fund has increased 5.02% and The Yacktman Fund has appreciated 5.32%, while the S&P 500 is up 3.89%.
If you judge his performance based on the short term, either for the quarter or YTD, you are making a mistake. Long term, Yacktman beat the benchmark hand down. During the past ten years, the Focus Fund returned 227.15% and the Yacktman Fund returned 220.73%.
In the late part of 2009, after the market run up, Yacktman has switched from more speculative issues to high quality stocks. He has stuck to the thesis ever since. In his own words in the letter:
We think our current holdings continue to represent very solid value, and feel fortunate to have significant positions in some of the world’s greatest businesses. We feel our funds are well positioned regardless of the short term direction of the economy.
Also in the letter, Yacktman presented his thoughts on a number of his top holdings:
News Corp
News Corp appreciated solidly during the quarter, though we think it remains extremely undervalued. Cable content has continued to deliver strong results, and for both the quarter and the year that segment grew pre-tax profits by more than 30%. Cable networks now represent approximately 50% of total pre-tax profits for News Corp. The company is currently negotiating for higher fees for its cable channels and The Fox Network, which we think could lead to a substantial increase in profits.
It is unusual for value buyers like us to get to own a business or significant business unit that has grown as rapidly News Corp’s cable content has because the valuation is usually too high. In the last three years, even though there has been a recession, the cable network segment has doubled operating profits. In the last five years pre-tax profits have tripled, and they are up an astonishing 25+-fold over the last decade. However, News Corp trades at only 12-13 X our estimate of the next twelve months of free cash flow. We view this as an incredible bargain, especially given the bright future we see for the cable content business.
Last year, Chase Carey rejoined News Corp as President and COO, stepping down as CEO of DirectTV, which was arguably the best-run pay television provider during Mr. Carey’s tenure there. It is rare to see a highly successful CEO of a major company leave for a new position without continuing to hold the CEO title. We think Mr. Carey made the move because he recognized significant untapped potential in News Corp’s businesses, especially its cable content and The Fox Network. We believe Mr. Carey is a significant asset to the company, especially during the current fee negotiations.
Microsoft
Microsoft’s stock appreciated in the third quarter, but underperformed the overall market, and is still down for the year. The poor share price performance year-to-date was posted despite solid earnings, reasonable prospects, and an inexpensive valuation. Over the next 12 months, we think the company can generate approximately $2.50 per share in free cash flow. At current levels, after subtracting the excess cash and securities on the balance sheet, we own the stock at only a bit more than 8 times our expectation of the next 12 months of free cash flow. At this price, we do not even need growth to have a successful investment; we just need the business to avoid meaningful decline.
Medical Device Stocks
We added to our holdings in healthcare equipment companies during the quarter. Our medical device positions include Johnson & Johnson, CR Bard, Becton Dickinson, Stryker, and Covidien in both funds and a small position in Medtronic in The Yacktman Fund. These stocks have generally been under pressure due to concerns about the changes in the American healthcare system as well as a medical device excise tax that is due to begin in 2013. The medical device companies we own sell products that
are necessary for treating an aging population around the world and generally posted solid growth through the recession. All of the companies sell at low multiples to cash flow and earnings.
Read his full letter here.
Check out Donald Yacktman’s complete stock portfolio by clicking on his name.
