Introducing Donald Yacktman’s Focused Fund – Top Holdings Overview
Of the 44 stocks in the $6.41 billion valued portfolio, these are the largest holdings: Procter & Gamble (PG), News Corp. (NWSA), PepsiCo (PEP) and Cisco Systems (CSCO).
Procter & Gamble (PG)
Procter & Gamble comprises 13% of the Focused Fund, with 12.3 million shares included.
PG’s stock has been increasing almost 17% over the past three years, after a sharp sell-off in 2009.
Founded in 1837, the company has a portfolio of consumer brands that and a $199.5 billion market cap.
In the past three years, both PG’s return on equity and return on assets declined annually, along with net income. Meanwhile, revenue increased to $83.7 billion in 2012.
Yacktman commented on the lagging performance in his fourth quarter letter, noting that the company only returned 17% compared to the S&P 500’s 40% from Aug. 30, 2010, to Jan. 14, 2013. “We believe that this underperformance relative to the broader market is more a result of investor sentiment than results and should lead to better than average performance from these companies going forward. We especially like these staples positions because the rates of return we expect over time are especially attractive given the consistency and quality of these businesses.”
PG also returns significant capital to shareholders. After raising dividends annually over the past decade, it paid $2.17 per share to shareholders in 2012.
PG data byGuruFocus.com
After several years of underperformance, PG has implemented a growth and cost savings strategy that was so effective in its first half that it raised its sales, earnings and share repurchase outlook for fiscal year 2013.
PG has a P/E of 18.3, P/B of 3 and P/S of 2.5.
News Corp. (NWSA)
The Yacktmans have placed 12.1% of the Focused portfolio into News Corp, with a position size of 30.5 million shares.
A global media company owned by Rupert Murdoch, News Corp. operates in cable television, film, television, satellite broadcasting, publishing and other industry segments.
Newscorp since 2009 has raised revenue and returned to profitability, earning $1.18 billion in net income. It has also produced steady free cash flow for the past decade. Its more recent quarterly results have been dragged down by underperformance in its publishing division.
On Dec. 21, the company filed a registration statement to separate into two independent, publicly traded companies. The two companies would consist of a new News Corp, operating newspapers, information services, publishing and related matters, and a media and entertainment company named Fox Group.
The market welcomed the news and sent shares soaring. Yacktman commented in his fourth quarter letter:
“In 2012, News Corp was the biggest contributor to fund returns, appreciating more than 40%. Business execution was strong, especially in the cable content division, and the company continued its shareholder friendly behavior, both repurchasing a significant amount of stock and announcing that it would be splitting the company into two separate entities. We think the split could help the shares continue to deliver strong results as the market more fully appreciates what we see, which is a fast growing cable content division that has had its extraordinary growth obscured by declining newspaper results.”
News Corp has a P/E of 23.8, P/B of 2.4 and P/S of 2.
Holding 9.3 million shares, Yacktman has placed 9.9% of the Focused Fund in PepsiCo Inc.
PepsiCo is a beverage, snack and food company operating in six global segments. After a shock in 2008, PepsiCo stock has gained 5.08% over the past five years.
Over the same period, it has seen robust growth: average annual revenue increased at a rate of 14.8%, EBITDA at 10.6%, free cash flow at 17.4% and book value at 10.2%.
The company has five priorities that are driving growth: investing aggressively in its brands, accelerating innovation, focusing on execution of its productivity agenda and returning cash to shareholders.
With a decade of annually increasing dividends, PepsiCo expects to return $6 billion to shareholders in dividends and share repurchases in fiscal 2012.
PepsiCo has a P/E of 18.8, P/B of 5.2 and P/S of 1.7.
Cisco Systems (CSCO)
Yacktman owns 19.998 million Cisco Systems shares, equivalent to 6.1% of his portfolio.
Cisco is a global networking company, whose shares have declined 13% over the past five years.
It is in the midst of navigating transitions in cloud, mobility and video markets, and faces more changes ahead in the Internet, which it is attempting to capitalize on.
The company has exhibited moderate growth over the past five years. Average annual revenue increased 7.8%, EBITDA at 6.5%, free cash flow at 1.8% and book value at 13.6%.
Yacktman acknowledges the slow growth in his fourth quarter letter:
“Cisco’s shares performed satisfactorily in 2012. The shares continue to be inexpensive as investors generally are avoiding ‘old tech’ shares, though not to the same extent as PC-related stocks. Our investments in technology companies are more a result of valuation than strong future growth prospects. As we often say, ‘It’s almost all about the price.’”
Its valuation includes a P/E ratio of 13.4, P/B of 2.1 and P/S of 2.4.
To see more holdings in Yacktman’s Focused Fund, go here. Also check out his Undervalued Stocks, Top Growth Companies and High Yield stocks.