In his second quarter letter, Donald Yacktman (Trades, Portfolio) called several of his largest positions “unpopular” and “some of the largest detractors” to the Yacktman Fund (Trades, Portfolio)s’ (YACKX, Financial) quarterly return. But he also considered them “high-conviction, long-term investments” offering “significant long-term value.”
Because of his long-term perspective and devotion to low prices, Yactkman added to two of these holdings on their price dips in the second quarter: Twenty-First Century Fox (FOX, Financial) and Procter & Gamble (PG, Financial). Yacktman also added to his holdings in Raven Industries Inc. (RAVN, Financial), Sysco Corp. (SYY, Financial) and Avon Products (AVP, Financial).
The Yacktman Focused Fund (Trades, Portfolio) ended the quarter down 2.6%, lagging the S&P 500’s gain. His approach of buying low-priced but good companies in otherwise high markets has hurt his short-term returns only to pay off in spades in the long run before. In the late 1990s, for instance, he avoided the dot-com bubble and posted strong returns over the next three years while many other funds suffered.
The same thing may be setting up to happen again, he said:
In the United States, we are now more than six years into a bull market. We think what has worked in the last few years may not work so well going forward. As market sentiment shifts, what has not been successful recently may significantly outperform in the future.
Yacktman added that as more stocks come off their highs, his managers were also identifying some new ideas and waiting for the right price to act.
Twenty-First Century Fox (FOX, Financial)
Yacktman increased his position in Twenty-First Century Fox 6.6% to 28,311,645 shares. The position in the company’s B-shares had a 4.87% portfolio weight, making it the eighth largest position. He also hold a position in the A-shares, which he reduced 1.52% in the quarter. It is his third-largest holding at a 6.6% portfolio weight.
Yacktman said of the company:
Fox is in the “penalty box” because the company is trading potentially higher current profits for far greater value in the future. This is exactly the way we like to see our businesses managed. However, the stock market currently favors companies that are maximizing profits today and penalizing those willing to invest for the future. We think this will set Fox up for strong outperformance over time and believe our patience will be richly rewarded.
Twenty-First Century Fox Inc. has a market cap of $60.65 billion; its shares were traded at around $29.48 with a P/E ratio of 6.97 and P/S ratio of 2.06. The dividend yield of Twenty-First Century Fox Inc. stocks is 0.93%.
Procter & Gamble (PG, Financial)
Yacktman increased his shares of his largest position Procter & Gamble 0.34%, buying 95,770 shares for a total of 28,638,888 shares. PG had an 11.98% portfolio weight at quarter-end.
Yacktman commented:
P&G was out of favor during the quarter as the company continued to sell its non-core businesses. Now that the divestitures are nearly complete, we think P&G will grow faster and manage costs more effectively than they have in recent years.
Procter & Gamble Co. was incorporated in Ohio in 1905. Procter & Gamble Co. has a market cap of $207.21 billion; its shares were traded at around $76.39 with a P/E ratio of 32.5 and P/S ratio of 2.87. The dividend yield of Procter & Gamble Co. stocks is 3.43%. Procter & Gamble Co. had an annual average earnings growth of 1.9% over the past 10 years.
Other Increases
Raven Industries Inc. (RAVN, Financial)
Yacktman made his largest increase to Raven Industries Inc., adding 16.98% to the position for a total of 31,000 shares. The position has less than a 0.01% portfolio weight.
Raven Industries Inc. is a South Dakota corporation was incorporated in February 1956. Raven Industries Inc. has a market cap of $719.72 million; its shares were traded at around $19.04 with a P/E ratio of 27.9 and P/S ratio of 2.07. The dividend yield of Raven Industries Inc. stocks is 2.73%. Raven Industries Inc. had an annual average earnings growth of 8.6% over the past 10 years. GuruFocus rated Raven Industries Inc. the business predictability rank of 4-star.
Yacktman increased his stake in Sysco Corp. 8.17% to 33,960,032 shares. It had a 6.54% portfolio weight.
Sysco Corp. was organized under the laws of Delaware. Sysco Corp. has a market cap of $22.94 billion; its shares were traded at around $38.63 with a P/E ratio of 26.25 and P/S ratio of 0.47. The dividend yield of Sysco Corp. stocks is 3.08%. Sysco Corp. had an annual average earnings growth of 3.3% over the past 10 years.
Avon Products (AVP, Financial)
Yacktman increased his Avon Products stake 7.05% to 38,341,852 shares, a 1.28% portfolio weight.
Avon Products Inc. was incorporated in the State of New York on Jan. 27, 1916. Avon Products Inc. has a market cap of $2.56 billion; its shares were traded at around $5.88 with and P/S ratio of 0.32. The dividend yield of Avon Products Inc. stocks is 4.09%.
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