After purchasing only a small parcel of shares in one company, Sigma-Aldrich Corp. (SIAL), in the first quarter for the Yacktman Focused Fund, Donald Yacktman and his team espied two values in the second quarter: Oracle Corp. (ORCL) and Wells Fargo (WFC). The total Yacktman Focused Fund contains 37 stocks and has a total value of $8.03 billion, with a quarter-over-quarter turnover of 7%.
Wells Fargo & Co. (WFC)
Yacktman purchased 1.85 million shares at $39 per share on average in the second quarter, equaling a 0.95% portfolio weight. The stock is up 11% from that average price, and at $43.10 Tuesday is near its 10-year high price. Wells Fargo is also Warren Buffett’s top stock at Berkshire Hathaway (BRK.A)(BRK.B).
Wells Fargo, with a $228.27 billion market cap, is a diversified financial services company with more than 9,000 stores and 12,000 ATMs in the U.S. and globally. Based in San Francisco, Wells Fargo has $1.4 trillion in assets, ranking it as the fourth largest bank in the U.S. by assets and first by market value of its stock.
Wells Fargo met significant milestone in 2012: reporting its fourth consecutive year of record profit, attesting to its strength post-financial crisis. Also since merging with Wachovia in 2008, the bank has grown deposits by more than $221 billion and core loans by $31 billion, through 2012. It ended last year with a Tier I common equity of $109.1 billion, a 15% increase from $95.1 in 2011.
Second quarter 2013 results on Wells Fargo came out on July 12. The bank reported quarterly net income of $5.5 billion and EPS f $0.98, a 20% increase from the prior year, and its 14th consecutive quarterly increase. Revenue increased $89 million to $21.4 billion on higher net interest income from loan growth and securities investments. ROA increased 14 basis points of 1.55% and ROE increased 116 basis points of 14.02%.
Wells’ loan portfolio continued its cleansing as well, with total nonperforming assets shrinking to 2.63% of its total loans, compared to 2.86% the previous quarter and 3.07% the previous year.
As of Tuesday Wells is trading with a P/S ratio at 2.63, near its three-year high. Its P/E is 11.9 and P/B is 1.5.
See its long-term price, revenue, earnings and P/E history:
For his larger purchase, Yacktman bought 8.3 million shares of Oracle for $33 per share on average, giving it a 3.2% portfolio weight.
A $151.12 billion market cap company, Oracle makes hardware and software for cloud and data centers. It reported its fourth fiscal quarter 2013 results on June 20. Quarterly revenue was flat at $10.9 billion, and net income increased 10% to $3.8 billion. It also ended the year with a record non-GAAP operating margin of 47%, driving its $14 billion in operating cash flow. Oracle returned almost 90% of the cash flow to shareholders as dividends and share repurchases, and increased cash on its balance sheet to $32 billion.
The operating improvements allowed the company’s board to increase its quarterly dividend 100% to $0.12 per share. It also authorized $12 billion in share repurchases under its existing share repurchase program.
See Oracle’s 10-year price, revenue, earnings and P/E history:
Oracle’s P/E is close to its 10-year low at 13.79, and its P/B is 3.29, near a one-year low. It has a P/S of 4.17.
The Peter Lynch chart indicates that Oracle is about fairly valued:
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