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Margaret Moran
Margaret Moran
Articles (383) 

The Yacktman Fund's Biggest 3rd-Quarter Trades

Fund invests in Hyundai Mobis, sells Qurate Retail

The Yacktman Fund (Trades, Portfolio) recently disclosed its portfolio updates for the third quarter of 2020, which ended on Sept. 30.

Part of Yacktman Asset Management, the fund is based in Austin, Texas and is an affiliate of Affiliated Managers Group Inc. (NYSE: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.

Based on its investing criteria, the fund established one new position during the quarter, Hyundai Mobis Co Ltd (XKRX:012330). It also sold out of its stake in Qurate Retail Inc. (NASDAQ:QRTEA) and reduced its holdings in Continental AG (XTER:CON), Samsung Electronics Co. Ltd. (XKRX:005935) and Microsoft Corp. (NASDAQ:MSFT).

Hyundai Mobis

The fund established a position of 370,000 shares in Hyundai Mobis, impacting the equity portfolio by 1.39%. During the quarter, shares traded for an average price of 219,114 South Korean won ($190.97).

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Hyundai Mobis is a South Korean car parts company that forms the "parts and service" arm for South Korean automakers, most notably Hyundai Motor Co (XKRX:005380) and Kia Motors Corp. (XKRX:000270).

On Oct. 15, shares of Hyundai Mobis traded around 231,500 won for a market cap of 21.63 trillion won and a price-earnings ratio of 12.46. The GuruFocus Value chart rates the stock as "fairly valued."

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The company has a financial strength rating of 8 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 3.38 and Altman Z-Score of 3.1 show that the company has a strong balance sheet. The operating margin of 2.24% and net margin of 3.11% have declined in recent quarters, but are still beating more than 66% of competitors.

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Qurate Retail

The fund exited its 1,900,000-share stake in Qurate Retail Inc., impacting the equity portfolio by -0.36%. Shares traded for an average price of $9.72 during the quarter.

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Colorado-based Qurate Retail is an American media conglomerate that owns brands such as Zulily, Frontgate, Garnet Hill and HSN. It utilizes a "Third Way to Shop" strategy for the brands it acquires, combining online and brick-and-mortar operations with marketing through social media.

On Oct. 15, shares of Qurate Retail traded around $7.72 for a market cap of $3.24 billion. The GuruFocus Value chart rates the stock as a possible value trap – i.e., the stock could be either a great bargain or the lower price could be a sign of permanent issues.

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The company has a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.14 is lower than 80.80% of competitors, while the Altman Z-Score of 1.41 indicates the company could face liquidity issues in the near future. However, the return on invested capital has typically been higher than the weighted average cost of capital in recent quarters, indicating overall profitability.

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Continental

The fund reduced its investment in Continental by 685,540 shares, or 35.34%, leaving a remaining holding of 1,254,460 shares. The trade had a -1.35% impact on the equity portfolio. During the quarter, shares traded for an average price of 89.32 euros ($104.94).

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Continental is a German auto parts company that specializes in manufacturing brake systems, interior electronics, power train and chassis components, safety parts and tires. Founded in 1871, the company aims to provide safe, efficient, intelligent and affordable products for the transportation and traffic control industries.

On Oct. 10, shares of Continental traded around 99.28 euros for a market cap of 19.72 billion euros. The GuruFocus Value chart rates the stock as modestly undervalued.

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The company has a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.3 and Altman Z-Score of 1.76 are both on the low end for the industry and indicate potential liquidity issues. The operating margin and net margin have both plunged into the negatives in recent quarters.

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Samsung Electronics

The fund sold 700,000 shares of its stake in Samsung Electronics, reducing the position by 4.38% to 15,300,000 shares, though it is still the largest holding in the portfolio. The trade had a -0.55% impact on the equity portfolio. Shares traded for an average price of 49,042.40 won during the quarter.

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Samsung Electronics is a South Korean multinational electronics company headquartered in Suwon-si. It produces a wide variety of consumer electronics, device solutions and IT and mobile communications equipment.

On Oct. 15, shares of Samsung traded around 53,600 won for a market cap of 407.67 trillion won and a price-earnings ratio of 19.08. According to the Peter Lynch chart, the stock is trading in line with its fair value but higher than its average historical valuation.

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The company has a financial strength rating of 8 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 6.78 and Altman Z-Score of 5.01 show a strong balance sheet with plenty of cash on hand. The ROIC is consistently higher than the WACC, indicating the company is creating value.

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Microsoft

The fund sold 100,000 shares of its holding in Microsoft, bringing the position down 10% to 900,000 shares and impacting the equity portfolio by -0.41%. During the quarter, shares traded for an average price of $210.04.

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Microsoft is an American multinational technology company headquartered in Redmond, Washington. It produces a wide variety of software and consumer electronics products.

On Oct. 15, shares of Microsoft traded around $219.35 for a market cap of $1.66 trillion and a price-earnings ratio of 38.11. The GuruFocus Value chart rates the stock as significantly overvalued.

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The company has a financial strength rating of 7 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 1.92 is average for the software industry, but the Altman Z-Score of 7.16 shows the company has no need to worry about liquidity. The operating margin of 37.03% and net margin of 30.96% are outperforming more than 96% of peers.

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Portfolio overview

As of the quarter's end, the fund held common stock positions in 49 companies valued at a total of $4.99 billion. The top holdings were Samsung with 12.65% of the equity portfolio, followed by Bollore SA (XPAR:BOL) with 6.94% and Brenntag AG (XTER:BNR) with 4.4%.

In terms of sector weighting, the fund was most invested in technology, communication services and consumer defensive.

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Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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