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Portfolio Positions
The disciplined investors at Yacktman Funds have stuck with the world’s highest quality businesses, most of which offer products or services integral to society. Their top holdings are PepsiCo (PEP), News Corp Cl. A (NWS), Procter & Gamble (PG), Microsoft (MSFT), C.R. Bard (BCR), Cisco Systems (CSCO), Sysco Corporation (SYY), Coca-Cola (KO), Pfizer (PFE) and U.S. Bancorp (USB).
“I’ve been doing this for over forty years, and I can’t remember another period of time where I’ve seen so many high quality, profitable businesses selling at prices relative to the market this cheaply,” Yacktman said in an interview recently.
In the fourth quarter, Yacktman’s biggest additions to his holdings were Research In Motion (RIMM) and Avon Products (AVP). He also surprised followers by venturing into financials, with new positions in Goldman Sachs (GS), Bank of America (BAC), State Street Corp. (STT) and Northern Trust Corp. (NTRS).
How He Does It
Businesses that Yacktman likes will have:
· 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 repurchase cycles and long product cycles
· Unique franchise characteristics
The price must also be less than what an investor would pay to buy the whole company, and they will wait for the lowest possible price to buy a stock. The company describes their approach as “objective, diligent and patient.”
A side note about Donald Yacktman is that he was often criticized for his contrarian moves during the tech bubble. While many other managers were going headlong into Internet stocks, he positioned his portfolio in undervalued small caps, believing that Internet companies were dangerously overvalued. When the bubble burst, he was proved right. His fund then had a streak of beating the market from 2000-2002, while the S&P 500 produced negative returns.
About Yacktman
Yacktman founded Yacktman Asset Management Co. in 1992, after serving for 10 years as senior portfolio manager of the Selected American Shares mutual fund, and was named Portfolio Manager of the Year by Morningstar in 1991. From 1968 to 1982, he was a portfolio manager with Stein Roe & Farnham. He holds a B.S. magna cum laude in economics from the University of Utah and an MBA with distinction from Harvard University.
Asking a Question
GuruFocus will speak with Donald Yacktman this month and ask him our readers’ questions. To ask your questions, enter it in the comments section below.
See Yacktman’s complete portfolio here, and also check out his Undervalued Stocks, Top Growth Companies and High Yield stocks.
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"Whitney Tilson of T2 Partners has said that Microsoft should borrow against their O.U.S. cash, and use the billions in debt proceeds to seriously increase their cash to shareholders via dividends and buybacks; what are your thoughts on this proposal?"
"How do you think about PepsiCo's long term growth potential? Are you concerned about the potential for value destruction as management continues the push towards "Good For You" products (the JV with Mueller in yogurt that was discussed in October of last year comes to mind)?"
"Procter & Gamble is currently dealing with some competitors who are cutting prices in the face of commodity cost increases in an attempt to grab share, and has announced price increase reversals in certain categories as a result; what are your thoughts about P&G's moat in terms of some increasingly commodity-like industries such as hand soap, cough syrup, etc, which are subject to private label competition? While innovation can win on the higher end (Tide Pods, for example), how do you think they'll fair with their lower-end brands as retailers continue to push their own products?"
Thanks in advance for your time Mr. Yacktman; it is much appreciated.