Market has declined about 10% from its near-term top. One investment manager, Donald Yacktman, seems to be able to sleep pretty well. His two funds returned over 80% during the past 12 months, and they returned over 13% per year over the past 10 years, through the end of March of 2010. S&P 500 returned 50% and -0.65% during the respective periods. Investing in his funds would have been very profitable.
GuruFocus reviewed his secret of success in the following two articles:
This mornings, Yacktman appeared on CNBC. Yacktman sticks to his messages of where to finding value and how to keep a long-term perspective in turbulent times likes now:
Quarterly Conference Call
Donald Yacktman had recently had a quarterly conference call. You can access the audio file here.
In the call, the management team discussed that their portfolio movements in the quarter. They reduced some of the positions that performed strongly during the past year, and added some of the high-quality blue chips issues. Essentially, their portfolio has made a round trip to that of 2007. The holdings are once again full of Coca-Cola and PepsiCo.
In the 1Q2010 Quarterly Commentary, Yacktman comments on his top holdings:
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.
No. 1: News Corp. (NASDAQ:NWSA), Weightings: 10.19% - 23,008,490 Shares
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 $23.59 billion; its shares were traded at around $12.95 with a P/E ratio of 13.21 and P/S ratio of 0.78. The dividend yield of News Corp. stocks is 1.16%.
Yacktman bought 6 million shares of NWSA in 1Q10. See his holding history in this stock here:
No. 2: PepsiCo Inc. (NYSE:PEP), Weightings: 9.94% - 4,890,541 Shares
PepsiCo, Inc. consists of: Frito-Lay Company, Pepsi-Cola Company, and Tropicana Products. Pepsico Inc. has a market cap of $105.08 billion; its shares were traded at around $63.58 with a P/E ratio of 16.91 and P/S ratio of 2.43. The dividend yield of Pepsico Inc. stocks is 2.83%. 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 hold 11million shares of PEP in 1Q10. Click hereto assess the Yacktman’s full holding history of this stock.
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 $118.92 billion; its shares were traded at around $51.59 with a P/E ratio of 16.12 and P/S ratio of 3.84. The dividend yield of The Cocacola Company stocks is 3.41%. 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 commented on Coca-Cola holding in his 1Q2010 Fund Commentary:
Shares of Coca-Cola declined slightly during the first quarter, and are attractively priced, especially given low level of risk we see for the business. Over time, emerging markets represent a significant opportunity for growth. In 2009 the volume gains in China, India, Mexico and Brazil were equivalent to the total volume of Coca-Cola’s sixth largest market, Germany.
We are often asked how we expect to get market-beating returns owning consumer staple securities like Coca-Cola. Here is how we look at it. Coca-Cola should earn approximately $3.40 this year. After making investments for growth, we expect the company to generate about $3 per share that it can use however it chooses. Based on the current share price, this equates to a free cash yield of approximately 5.5%. Over long periods of time we would expect the company to grow volume at 3-4% per year and raise prices by a couple of percentage points annually to nearly keep up with inflation.
In total, this gets us to a double-digit annual expected rate of return assuming the shares sell at a similar multiple of earnings/cash flow compared to today. Given the high degree of confidence we have about the business, this is a solid investment opportunity in the current environment.
Some think if an investment idea is well-known and seems obvious it can’t be really good. In 1938, Fortune Magazine concluded “Several times every year, a weighty and serious investor looks long and with profound respect at Coca-Cola's record, but comes regretfully to the conclusion that he is looking too late.” Since that time, Coca-Cola has grown significantly both do mestically and around the world. It was not too late in 1938, and we believe it is far from that today.
We look for predictability and quality, and would rather invest in a potentially lower projected rate of return if that means improving our risk/reward. Stretching to try to make a slightly higher return is never a good idea, and it usually leads to lower returns with higher risk. We believe our high quality approach has helped us protect capital far better than other managers in difficult environments.
His comments on this stock applies to many of his top holdings as well.
Yacktman bought 1.6 million shares of KO in 1Q10. Click hereto assess the Yacktman’s full holding history of this stock.
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 $17.25 billion; its shares were traded at around $32.58 with a P/E ratio of 11.8 and P/S ratio of 1.2.
Yacktman bought 1.4 million shares of VIA.B in 1Q10. Click hereto assess the Yacktman’s full holding history of this stock.
No. 5: ConocoPhillips (NYSE:COP), Weightings: 5.33% - 3,391,850 Shares
ConocoPhillips is a major international integrated energy company with operations in some 49 countries. Conocophillips has a market cap of $76.53 billion; its shares were traded at around $51.47 with a P/E ratio of 11.44 and P/S ratio of 0.5. The dividend yield of Conocophillips stocks is 4.27%. Conocophillips had an annual average earning growth of 18.2% over the past 10 years.
Yacktman bought one million shares of COP in1Q10. Click hereto assess the Yacktman’s full holding history of this stock.
No. 6: Pfizer Inc (NYSE:PFE), Weightings: 5.22% - 9,912,650 Shares
Pfizer Inc is a research-based, global pharmaceutical company. Pfizer Inc has a market cap of $124.25 billion; its shares were traded at around $15.4 with a P/E ratio of 7.4 and P/S ratio of 2.48. The dividend yield of Pfizer Inc stocks is 4.68%. Pfizer Inc had an annual average earning growth of 1.8% over the past 10 years.
Yacktman bought about 2.5 million shares of PFE in 1Q10. Click hereto assess the Yacktman’s full holding history of this stock.
Yacktman is very consistent with his approach of investing. At a time when valuation level has recovered and volatility is returning. Yacktman bought more of the high-quality stocks.
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