As many value investors struggled in 2011, Yacktman Funds continues to deliver impressive results. Both of their funds gained more than 7.3% in 2011, while the S&P500 is flat for the year. By comparison, outstanding value investor David Einhorn’s Greenlight gained 2.9%. Whitney Tilson, the man that represents value investing in media, lost 25% with his T2 Accredited Fund. John Paulson, the most followed hedge fund manager, lost more than 45% with his Advantage Plus fund.
As a result, Yacktman Funds has averaged 24.4% a year during the past 3 years, 8% a year during the past 5 years, and 10.6% a year during the last 10 years. Yacktman Funds has also seen tremendous asset inflows.
These are some of the highlights of Yacktman Fund activities and commentaries. NW
Portfolio Holdings
Media
News Corp (NWS), Viacom (VIA, Financial), and Comcast (CMCSA, Financial) had strong returns in 2011, yet all three companies still sell at low multiples of earnings and free cash flow. By far our largest media position is News Corp, which we think has an outstanding group of businesses and continues to be priced at a very compelling valuation. Last year, News Corp was the top contributor to results in each fund, and interestingly was also the most controversial holding. In the middle of the year, a phone hacking scandal at one of News Corp’s newspapers in the United Kingdom became a significant short-term issue. Management handled the situation effectively by closing the newspaper where the activities took place, cancelling a proposed transaction to take full control of the largest satellite operator in the United Kingdom, BSkyB, and announcing a return of capital to shareholders via stock repurchase.
We bought additional News Corp shares during the controversy, as we did not think that the company’s most valuable assets, cable and television content, would be materially impacted by the scandal. This proved to be the case, and News Corp’s cable and television content businesses posted another stellar year in 2011, achieving high rates of growth in revenues and earnings. From August through the end of the year, News Corp management repurchased $2.5 billion of stock, representing more than 5% of the company’s outstanding shares, at what we think were very attractive prices. At less than 12 times our estimate of calendar 2012 earnings per share, we think News Corp is still inexpensive.
“Old Tech”
Last year, the shares of many more established technology companies were out of favor, allowing us to increase our weighting to a group which we call “old tech”. At the end of 2011, Microsoft (MSFT, Financial) and Cisco (CSCO, Financial) were our largest “old tech” positions and in the top six holdings of each fund. We also owned smaller positions in HP, Corning, and Research in Motion, all of which underperformed in 2011.
Microsoft’s shares were modestly weaker last year even though the company delivered solid business results. At year end, the stock sold at slightly more than seven times our estimate of 2012 earnings after adjusting for the excess cash on the balance sheet. At this low multiple, Microsoft can be a good investment if the business just delivers stable results. If Microsoft achieves success from new products like Windows 8, we think the stock could perform exceptionally well.
During 2011 we substantially increased our position in Cisco Systems as the shares collapsed in the middle of the year. We think management has taken a realistic and prudent approach to handling the company’s short-term challenges, as did other investors, and the stock rebounded solidly at the end of the year. We think the shares continue to be attractive at current prices.
Consumer Staples
Our largest positions in consumer staple companies produced solid results in 2011, with PepsiCo (PEP, Financial), Procter & Gamble (PG, Financial), Coca-Cola (KO, Financial), and Clorox (CLX, Financial) appreciating in the mid-to-high single digits. These businesses tend to be fairly stable and predictable, with a strong ability to handle uncertain economic periods. We reduced our weightings in Coca-Cola and Clorox during the year due to their strong price performance.
Healthcare
In 2011 pharmaceutical shares were generally strong and medical device stocks weaker. Pfizer was a solid contributor to fund results with the stock appreciating more than 20% in 2011. Johnson & Johnson, which has a diverse set of businesses, including medical device, pharmaceutical, and consumer health also performed well. Medical device stocks like C.R. Bard, Stryker, and Becton Dickinson all declined in the midto- high single digit range.
C.R. Bard (BCR, Financial) underperformed in 2011 due to slower customer demand as the weak economy caused a reduced number of patient procedures. Bard is more than 100 years old and sells a wide variety of modestly priced, often disposable medical devices and supplies. We are impressed by the company’s product portfolio as well as the CEO, Tim Ring, who is focused on delivering results over the long term while managing risk. We increased our position in C.R. Bard as the stock declined.
Read the complete shareholder letter.
As a result, Yacktman Funds has averaged 24.4% a year during the past 3 years, 8% a year during the past 5 years, and 10.6% a year during the last 10 years. Yacktman Funds has also seen tremendous asset inflows.
These are some of the highlights of Yacktman Fund activities and commentaries. NW
Portfolio Holdings
Media
News Corp (NWS), Viacom (VIA, Financial), and Comcast (CMCSA, Financial) had strong returns in 2011, yet all three companies still sell at low multiples of earnings and free cash flow. By far our largest media position is News Corp, which we think has an outstanding group of businesses and continues to be priced at a very compelling valuation. Last year, News Corp was the top contributor to results in each fund, and interestingly was also the most controversial holding. In the middle of the year, a phone hacking scandal at one of News Corp’s newspapers in the United Kingdom became a significant short-term issue. Management handled the situation effectively by closing the newspaper where the activities took place, cancelling a proposed transaction to take full control of the largest satellite operator in the United Kingdom, BSkyB, and announcing a return of capital to shareholders via stock repurchase.
We bought additional News Corp shares during the controversy, as we did not think that the company’s most valuable assets, cable and television content, would be materially impacted by the scandal. This proved to be the case, and News Corp’s cable and television content businesses posted another stellar year in 2011, achieving high rates of growth in revenues and earnings. From August through the end of the year, News Corp management repurchased $2.5 billion of stock, representing more than 5% of the company’s outstanding shares, at what we think were very attractive prices. At less than 12 times our estimate of calendar 2012 earnings per share, we think News Corp is still inexpensive.
“Old Tech”
Last year, the shares of many more established technology companies were out of favor, allowing us to increase our weighting to a group which we call “old tech”. At the end of 2011, Microsoft (MSFT, Financial) and Cisco (CSCO, Financial) were our largest “old tech” positions and in the top six holdings of each fund. We also owned smaller positions in HP, Corning, and Research in Motion, all of which underperformed in 2011.
Microsoft’s shares were modestly weaker last year even though the company delivered solid business results. At year end, the stock sold at slightly more than seven times our estimate of 2012 earnings after adjusting for the excess cash on the balance sheet. At this low multiple, Microsoft can be a good investment if the business just delivers stable results. If Microsoft achieves success from new products like Windows 8, we think the stock could perform exceptionally well.
During 2011 we substantially increased our position in Cisco Systems as the shares collapsed in the middle of the year. We think management has taken a realistic and prudent approach to handling the company’s short-term challenges, as did other investors, and the stock rebounded solidly at the end of the year. We think the shares continue to be attractive at current prices.
Consumer Staples
Our largest positions in consumer staple companies produced solid results in 2011, with PepsiCo (PEP, Financial), Procter & Gamble (PG, Financial), Coca-Cola (KO, Financial), and Clorox (CLX, Financial) appreciating in the mid-to-high single digits. These businesses tend to be fairly stable and predictable, with a strong ability to handle uncertain economic periods. We reduced our weightings in Coca-Cola and Clorox during the year due to their strong price performance.
Healthcare
In 2011 pharmaceutical shares were generally strong and medical device stocks weaker. Pfizer was a solid contributor to fund results with the stock appreciating more than 20% in 2011. Johnson & Johnson, which has a diverse set of businesses, including medical device, pharmaceutical, and consumer health also performed well. Medical device stocks like C.R. Bard, Stryker, and Becton Dickinson all declined in the midto- high single digit range.
C.R. Bard (BCR, Financial) underperformed in 2011 due to slower customer demand as the weak economy caused a reduced number of patient procedures. Bard is more than 100 years old and sells a wide variety of modestly priced, often disposable medical devices and supplies. We are impressed by the company’s product portfolio as well as the CEO, Tim Ring, who is focused on delivering results over the long term while managing risk. We increased our position in C.R. Bard as the stock declined.
Read the complete shareholder letter.
