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Margaret Moran
Margaret Moran
Articles (117) 

Yacktman Fund’s Biggest Buys of 4th-Quarter 2019

Fund buys into food products and news, profits on Weatherford's rise from bankruptcy

The Yacktman Fund (Trades, Portfolio) recently disclosed its portfolio updates for the fourth quarter of fiscal 2019. During the quarter, the Fund established new positions in Weatherford International PLC (WFTLF) and Associated British Foods PLC (LSE:ABF) and made significant additions to its holdings in Fox Corp (NASDAQ:FOXA) and News Corp. (NASDAQ:NWSA). It also made reductions to several positions, including PepsiCo Inc. (NASDAQ:PEP), Procter & Gamble Co (NYSE:PG), Samsung Electronics Co Ltd (XKRX:005935) and Johnson & Johnson (NYSE:JNJ).

The Yacktman Fund (Trades, Portfolio) is based in Austin, Texas and is an affiliate of Affiliated Managers Group Inc. (AMG), a global asset management company. Its investing strategy has a focus on value equity investing, employing a patient and diligent research approach and investing in both U.S. and foreign equities in order to reduce risk. Chief Investment Officer Stephen Yacktman leads the Fund’s team of investors, which uses a generalist rather than a specialist approach, with each member responsible for following all investments rather than focusing on a specific sector. As of the end of the fourth quarter, the fund’s equity portfolio was valued at $5.98 billion.

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The fund’s top equity holdings are Samsung at 12.82%, Bollore SA (XPAR:BOL) at 7.02% and Proctor & Gamble at 4.91%. In terms of sector weightings, the fund is most heavily invested in technology, consumer defensive and communication services.

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Weatherford International PLC

The Yacktman Fund established a new stake of 5,443,908 shares in Weatherford International, impacting the equity portfolio by 2.54%. Shares traded at an average price of $3.29 during the quarter (or about $30, excluding the Chapter 11 bankruptcy that wiped out previous shareholders).

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Ireland-based Weatherford International was once the fourth-largest multinational oil and gas company in the world. In July of 2019, it filed for bankruptcy during a difficult year for the industry, with high competition driving prices down to around $50 to $65 per barrel. After trading at 2 cents per share on the over-the-counter market, the company emerged from bankruptcy in mid-December and issued new shares after ridding itself of $6 billion in debt and securing $10 billion in funding from bondholders.

As of Jan. 16, shares of Weatherford were trading at $33 apiece for a market cap of $34.14 billion. It has a GuruFocus financial strength rating of 3 out of 10 and a profitability rating of 3 out of 10. The company saw consistent declines in revenue and net losses beginning in 2014.

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“With renewed balance sheet strength, a strong customer base and a portfolio designed to meet the needs of our industry, we believe we are well-positioned to build on our reputation as a leader in the oil field services sector and to capitalize on the growth opportunities ahead,” CEO Mark McCollum said in a statement.

Associated British Foods PLC

The fund also bought 2,079,292 shares of Associated British Foods, impacting the equity portfolio by 1.2%. Shares traded for an average price of 24.04 British pounds ($31.41) during the quarter.

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Associated British Foods is a London-based food processing company, producing ingredients such as sugar, baker’s yeast, emulsifiers, enzymes and lactose as well as food and drink items such as bread, tea and deli meats. Though the company name is mostly recognized for food products, it also owns a retail division through Primark, a major value fashion retailer with more than 360 stores throughout Europe and the U.S.

As of Jan. 16, shares of Associated British Foods were trading at 25.55 pounds apiece for a market cap of 20.23 billion pounds. It has a GuruFocus financial strength rating of 8 out of 10 and a profitability rating of 8 out of 10, with a price-earnings ratio of 23.02 and a cash-debt ratio of 2.59. The three-year revenue growth rate is 5.7%, while the three-year earnings per share without non-recurring items growth rate is 2.4%.

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Some analysts consider the company to be undervalued based on its perceived future growth potential. Associated British Foods is a sustainability leader in all sectors of its operations, generating 52% of its energy from renewable sources and producing clothes from recycled materials. In a time where Europe is increasingly shifting toward more regulation to protect the environment, this may provide a valuable avenue of growth for the company, even as its sugar business declines as a result of shifting consumer tastes.

Fox Corp.

During the quarter, the fund upped its stake in Fox Corp. by 1,650,000 shares, or 82.5%, impacting the equity portfolio by 1.02%. Shares traded at an average price of $34.36 over the period. According to GuruFocus data, the investment has returned at total estimated gain of 6.82% for the fund.

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Fox Corp. was formed when 21st Century Fox was acquired by The Walt Disney Co. (NYSE:DIS) in March of 2019. The Fox Corp. banner includes news, entertainment and sports, as well as several regional station holdings. The company is perhaps most famous for its Fox News network, which ended 2018 as the most-watched cable network for the third year in a row and the most-watched cable news network for the 17th year in a row. Fox’s sports programming accounts for 88 of the top 100 most-watched live and same-day sports programs in the U.S.

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As of Jan. 16, shares of Fox traded around $37.98 apiece for a market cap of $23.32 billion. The company has a price-earnings ratio of 16.18, a cash-debt ratio of 0.45, a three-year revenue growth rate of 8.5% and a three-year earnings per share without non-recurring items growth rate of 14.1%.

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In recent company news, Fox extended the reach of its apps by launching them on Samsung Smart TVs. It also launched its news and business channels on Sling TV.

News Corp.

The Yacktman Fund (Trades, Portfolio) also added 3,396,621 shares, or 53.44%, to its News Corp. holding, impacting the equity portfolio by 0.8%. Shares traded at an average price of $13.45 during the quarter. According to GuruFocus data, the investment has returned at total estimated gain of 5.71% for the fund.

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News Corp. is a mass media and publishing company that owns publications such as The Wall Street Journal, Barron’s, Market Watch, HarperCollins, The Daily Telegraph, Realtor.com and more. It was formed in 2013 as one of the successors of the newspaper company of the same name (the other being 21st Century Fox).

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As of Jan. 16, shares of News Corp. were trading around $14.91 apiece for a market cap of $8.81 billion. The company has a GuruFocus financial strength score of 6 out of 10 and a profitability score of 5 out of 10. It has a cash-debt ratio of 0.51, a three-year revenue growth rate of 6.4% and a three-year earnings per share without non-recurring items decline of 2.4%. The previous two quarters have seen net losses.

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In the future, News Corp. expects to bring in more ad and subscription revenue thanks to its inclusion in Facebook’s News tab. "This development establishes a precedent that changes the terms of trade, and we expect a positive financial impact at our News and Information Services segment, beginning this fiscal year,” CEO Robert Thompson said in a press release.

Disclosure: Author owns no shares in any of the stocks mentioned.

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Comments

shucmu
Shucmu premium member - 1 month ago

I am confused about the stock price of Weatherford International PLC. According to gurufocus stock price graph, stock price was ~$0.02 before Dec. 19 2019, then it became $24.50 on Dec. 20, 2019. However, the stock before Dec. 19, 2019 was old stock issued, while after Dec. 20, the company issued new stock.

Are there any reverse split of old stock to new stock such as 1000 old stocks = 1 new stock? Or, is one share of old stock equal to one share of new stock such that the price of old stock increased 1225x after Dec 20?

Another more general question: if company emerges from chapter 11 and most debts are waived, the company has therefore strong positive NI, will the price of old stock of normall jumps significantly? or, it does not matter since there is always reverse split for the old stocks?

Thanks

shucmu
Shucmu premium member - 1 month ago

According to following article https://www.fool.com/knowledge-center/what-happens-to-stock-prices-after-exiting-bankrup.aspx. So the old stock of Weatherford International PLC will be worthless?

"What happens to the stock?
The short answer is that most of the time, the stock of a company in Chapter 11 becomes worthless and shareholders get completely wiped out. Purchasing stock of a bankrupt company for pennies per share and hoping to make a quick buck when the company restructures almost always turns out to be a bad idea.

The company may issue new shares upon emerging from bankruptcy, at which point the old shares are cancelled and become worthless. The new shares are often issued to its creditors in exchange for a reduction or forgiveness of the outstanding debt.

Now, the story doesn't always have a completely sad ending. There have been cases where existing shareholders receive something after the company emerges from bankruptcy -- usually a small portion of the newly created stock or a relatively small cash payment. However, it's not a good idea to count on it. It's rare and usually isn't much even when it happens. A study found that of the 41 publicly traded companies that went bankrupt in 2009 and 2010, shareholders of just four of them got any kind of return at all. The rest got wiped out completely."

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