Donald Yacktman manages the Yacktman and The Yacktman Focus Fund. He leads the charge of owning high quality companies in this time of high uncertainties. In his latest quarterly letter, he put his investment rational for the time being rather straight-forwardly:
Both funds have significant positions in some of the most attractive businesses in the world. It surprises some that we have achieved such strong outperformance while having large weightings in well-known stocks like Coca-Cola, PepsiCo, Pfizer, and Microsoft, as these companies are not exactly undiscovered or underfollowed.
We strive to be as objective as possible in evaluating all opportunities, and if the best businesses in the world are available at compelling valuations we are willing to own big positions in them. We sleep well at night knowing that dominant, well capitalized companies purchased at attractive valuations should produce solid results over time, even in a world with an extreme amount of uncertainty.
We are also willing to own lower quality businesses, but we have to project a meaningfully higher expected rate of return on the investment. Currently, we think most of the best values are in the highest quality companies.
The performance of Yacktman’s outstanding performance during the last decade bas been recognized by investors and money has been pouring in by investors. Yacktman’s challenge has been deploying the new money:
Yacktman’s solution has been buying the same high quality companies he already own. These are the companies he has been buying for at least the past two quarters:
No. 1: PepsiCo Inc. (PEP, Financial), Weightings: 10.5% - 6,267,671 Shares
Donald Yacktman owns 6,267,671 shares of PEP, valued as $382 million as of Jun. 30, 2010, which accounts for 10.5% of his equity portfolio. Donald Yacktman added his positions in the Mar. 31, 2010 quarter by 29.62%, again in the Jun. 30, 2010 quarter by 28.16%.
PepsiCo, Inc. consists of: Frito-Lay Company, Pepsi-Cola Company, and Tropicana Products. Pepsico Inc. has a market cap of $105.55 billion; its shares were traded at around $65.45 with a P/E ratio of 17 and P/S ratio of 2.5. The dividend yield of Pepsico Inc. stocks is 2.9%. 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.
In the 2Q10 quarterly letter, Yacktman commented on PEP:
Frito Lay, the most valuable division of PepsiCo, is the dominant snack chip company in the world. This business has significantly higher market share than any of its competitors, and its dominant market share produces substantially higher margins than most other packaged food companies. Strong distribution and innovation have allowed Frito Lay to grow faster than other large food companies. Outside of snack chips, PepsiCo has a collection of solid businesses including Pepsi, Tropicana, Quaker Oats, and Gatorade.
No. 2: News Corp. (NWSA, Financial), Weightings: 9.47% - 28,826,752 Shares
Donald Yacktman owns 28,826,752 shares of NWSA, valued as $345 million as of Jun. 30, 2010, which accounts for 9.47% of his equity portfolio. Donald Yacktman added his positions in the Mar. 31, 2010 quarter by 35.48%, again in the Jun. 30, 2010 quarter by 25.29%.
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 $24.4 billion; its shares were traded at around $13.39 with a P/E ratio of 13.8 and P/S ratio of 0.8. The dividend yield of News Corp. stocks is 1.1%.
In the 2Q10 quarterly letter, Yacktman commented on NWSA:
News Corporation is a global media conglomerate. In the last decade-plus, Rupert Murdoch has transformed the company from somewhat cyclical, advertising-based businesses like newspapers and network television, to more recurring revenue businesses like cable content. We expect the cable content business, which was in its infancy a little more than a decade ago, to produce approximately 50% of News Corporation’s pre-tax profits in the next 12 months.
News Corporation wants to increase its recurring revenue base even further by acquiring the 61% of BSkyB (the dominant pay television provider in the United Kingdom) it does not own. News Corporation has been the largest shareholder of BSkyB for more than 20 years and would be highly accretive to free cash flow per share at the proposed transaction price..
No. 3: The CocaCola Company (KO, Financial), Weightings: 9.22% - 6,694,413 Shares
Donald Yacktman owns 6,694,413 shares of KO, valued as $336 million as of Jun. 30, 2010, which accounts for 9.22% of his equity portfolio. Donald Yacktman added his positions in the Mar. 31, 2010 quarter by 48.71%, again in the Jun. 30, 2010 quarter by 34.07%.
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 $129.29 billion; its shares were traded at around $56.04 with a P/E ratio of 16.8 and P/S ratio of 4.1. The dividend yield of The Cocacola Company stocks is 3.2%. 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.
In the 2Q10 quarterly letter, Yacktman commented on KO:
Coca-Cola products account for nearly 3% of beverage consumption around the world. Increased per capita consumption and global expansion have driven more than a century of growth. Today, Coca-Cola is primarily an international company; the stagnant North American business is a minority of operating profits. Due to a strong presence in key emerging markets, we expect Coca-Cola’s growth will continue for a long time in the future.
No. 4: The Clorox Company (CLX, Financial), Weightings: 6.43% - 3,763,338 Shares
Donald Yacktman owns 3,763,338 shares of CLX, valued as $234 million as of Jun. 30, 2010, which accounts for 6.43% of his equity portfolio. Donald Yacktman added his positions in the Mar. 31, 2010 quarter by 62.68%, again in the Jun. 30, 2010 quarter by 44.76%.
Clorox Company's business operations, represented by the aggregate of its U. The Clorox Company has a market cap of $9.1 billion; its shares were traded at around $64.63 with a P/E ratio of 15.1 and P/S ratio of 1.7. The dividend yield of The Clorox Company stocks is 3.4%. The Clorox Company had an annual average earning growth of 10.7% over the past 10 years. GuruFocus rated The Clorox Companythe business predictability rank of 3-star.
In the 2Q10 quarterly letter, Yacktman commented on CLX:
Coca-Cola products account for nearly 3% of beverage consumption around the world. Increased per capita consumption and global expansion have driven more than a century of growth. Today, Coca-Cola is primarily an international company; the stagnant North American business is a minority of operating profits. Due to a strong presence in key emerging markets, we expect Coca-Cola’s growth will continue for a long time in the future.
No. 5: Pfizer Inc (PFE, Financial), Weightings: 6.32% - 16,136,514 Shares
Donald Yacktman owns 16,136,514 shares of PFE, valued as $230 million as of Jun. 30, 2010, which accounts for 6.32% of his equity portfolio. Donald Yacktman added his positions in the Mar. 31, 2010 quarter by 32.38%, again in the Jun. 30, 2010 quarter by 62.79%.
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 $129.06 billion; its shares were traded at around $16 with a P/E ratio of 7.2 and P/S ratio of 2.5. The dividend yield of Pfizer Inc stocks is 4.6%. Pfizer Inc had an annual average earning growth of 1.8% over the past 10 years.
In the 2Q10 quarterly letter, Yacktman commented on PFE:
Pfizer is the largest pharmaceutical company in the world. Pharmaceuticals are a cost effective way to treat an aging population. However, Pfizer is the least predictable business of the five in this list because it is fighting patent expirations, pricing controls, and greater competition than consumer or subscriber based businesses.
Read Yacktman’s latest quarterly letter
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