Through March 31, 2010, return of his The Yacktman Fund (YACKX) has been 82.91, 8.93, 8.49, 13.59, and 10.25 for the respective period, beating the S&P 500’s 49.77, -4.17, 1.92, -0.65, and 8.14% for the same periods. And he did this without subject his portfolio to excessive risk: during the market highs of 2007, he has an abnormally high level of cash. And during the past 12 months, as the market recovering from the lows of March 2009, he received weightings in cyclical positions which performed exceptionally well such as AmeriCredit, Liberty Interactive, eBay, and initiated or increased high quality securities such as PepsiCo, Clorox, Comcast, Johnson & Johnson, Pfizer, and Procter & Gamble.
Focus on High Quality Stocks
The thesis of favoring high quality stocks is echoed by Jeremy Grantham and his firm GMO. In the latest Asset Allocation recommendation published by GMO, the firm forecast the high quality US equity would return 6.1% in the next seven years:
Yacktman and Grantham agree on high quality equities offer attractive expected return based on their relative low valuation level. To that end, Yacktman offered the following perspective in his 1Q10 letter:
“It’s almost all about the price”
Identifying great companies is not especially difficult. Appraising the future prospects of a business and paying an appropriate price are far more critical to generating attractive returns and managing risk than just picking leaders.
In each fund, six of the top ten positions (News Corp, Coca-Cola, Microsoft, Viacom, Pfizer, and Comcast) today trade at price levels below their close at the end of 1999, even though each of the six businesses has grown its sales and earnings per share (in most cases substantially) in the last decade-plus. We did not own any of these six poorly performing stocks in either fund back in 1999, but have been happy to purchase and own them in the last few years at much more attractive prices. We like to buy quality merchandise when it is in the discount bin.
As of March 31, a good portion of Yackman’s assets were invested in the Consumer Goods (29.7%) and Consumer Services (32%), not much changed from the previous quality.
Here are the top six positions of Yacktman's portfolio as of March 31, 2009:
NEWS CORPORATION is a diversified entertainment company with operations in eight industry segments: filmed entertainment; television; cable network programming; direct broadcast satellite television; magazines and inserts; newspapers and information services; book publishing; and other. News Corp. has a market cap of $28.11 billion; its shares were traded at around $15.43 with a P/E ratio of 19.53 and P/S ratio of 0.92. The dividend yield of News Corp. stocks is 0.97%.
Yacktman bought an additional 7 million shares in the quarter.
PepsiCo, Inc. consists of: Frito-Lay Company, Pepsi-Cola Company, and Tropicana Products. Pepsico Inc. has a market cap of $107.79 billion; its shares were traded at around $65.22 with a P/E ratio of 17.35 and P/S ratio of 2.49. The dividend yield of Pepsico Inc. stocks is 2.76%. Pepsico Inc. had an annual average earning growth of 8.9% over the past 10 years. GuruFocus rated Pepsico Inc. the business predictability rank of 4-star.
Yacktman bought an additional 11 million shares in the quarter.
No. 3: The CocaCola Company (NYSE:KO), Weightings: 8.44% - 4,993,360 Shares
The Coca-Cola Company is the world's largest beverage company and is the producer and marketer of soft drinks. The Cocacola Company has a market cap of $123.21 billion; its shares were traded at around $53.45 with a P/E ratio of 16.7 and P/S ratio of 3.98. The dividend yield of The Cocacola Company stocks is 3.29%. The Cocacola Company had an annual average earning growth of 8.9% over the past 10 years. GuruFocus rated The Cocacola Company the business predictability rank of 3.5-star.
Yacktman bought an additional 1.6 million shares in the quarter.
No. 4: Viacom Inc. (VIA-B), Weightings: 6.44% - 6,092,400 Shares
Viacom is a global entertainment content company whose family of prominent and respected brands includes the multiplatform properties of MTV Networks, BET Networks, Paramount Pictures, Paramount Home Entertainment and DreamWorks. Viacom Inc. has a market cap of $19.61 billion; its shares were traded at around $35.33 with a P/E ratio of 13.23 and P/S ratio of 1.44.
Yacktman bought 1.4 million shares during the quarter.
ConocoPhillips is a major international integrated energy company with operations in some 49 countries. Conocophillips has a market cap of $88.01 billion; its shares were traded at around $59.19 with a P/E ratio of 13.15 and P/S ratio of 0.58. The dividend yield of Conocophillips stocks is 3.38%. Conocophillips had an annual average earning growth of 18.2% over the past 10 years.
Yacktman bought an additional 1million shares in the quarter.
No. 6: Pfizer Inc (NYSE:PFE), Weightings: 5.22% - 9,912,650 Shares
Pfizer Inc is a research-based, global pharmaceutical company that discovers and develops innovative, value-added products that improve the quality of life of people around the world and help them enjoy longer, healthier, and more productive lives. Pfizer Inc has a market cap of $134.9 billion; its shares were traded at around $16.72 with a P/E ratio of 8.28 and P/S ratio of 2.7. The dividend yield of Pfizer Inc stocks is 4.31%. Pfizer Inc had an annual average earning growth of 1.8% over the past 10 years.
Yacktman bought 2.5 million shares of the stock in the last quarter.
Donald Yacktman continue to add position in the high quality US stocks during the first quarter of 2009.
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Read the Yacktman 1Q10 Quarterly letter: