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Margaret Moran
Margaret Moran
Articles (380) 

Yacktman Asset Management's Top 3rd-Quarter Trades

Firm drops Qurate Retail, ups stakes in well-known blue chips

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

Headquartered in Austin, Texas, Yacktman Asset Management (Trades, Portfolio) pursues long-term capital appreciation using a growth and value-based strategy. Specifically, the firm looks to purchase the stocks of business that have the following three characteristics: good business (high market share, high cash return on tangible assets, unique franchise characteristics, etc.), shareholder-oriented management (allocates capital wisely, does not overcompensate executives, etc.) and low purchase price. Stephen Yacktman, who joined the firm in 1993, is the chief investment officer of the firm.

Based on the above investing criteria, the firm sold out of its position in Qurate Retail Inc. (NASDAQ:QRTEA) during the quarter. It also added to its investments in a wide range of blue chips, including Fox Corp. (NASDAQ:FOX), The Walt Disney Co. (NYSE:DIS), Amerco Inc. (NASDAQ:UHAL) and Coca-Cola Co. (NYSE:KO).

Qurate Retail

The firm sold all 3,394,712 of its shares in Qurate Retail, impacting the equity portfolio by -0.51%. During the quarter, shares traded for an average price of $9.72.

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Formerly known as Liberty Interactive, Qurate Retail Group is a retail media conglomerate based in Colorado. The company combines retail, media and social applications to curate shopping experiences through various communication networks. Its brands include QVC, Zulily and Cornerstone.

On Nov. 2, shares of Qurate Retail traded around $6.84 for a market cap of $2.85 billion. According to the GuruFocus Value Line chart, the stock is cheap, but it is also a possible value trap.

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GuruFocus gives the company 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 81% of industry competitors, while the Altman Z-Score of 1.39 indicates the company could face liquidity issues in the next couple of years. The company has a three-year revenue growth rate of 12.8%, but a three-year Ebitda growth rate of -44.1%.

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Fox

The firm upped its stake in Fox by 784,492 shares, or 7.52%, impacting the portfolio by 0.33%. Shares traded for an average price of $26.55 during the quarter.

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Fox represents the operations of 21st Century Fox that were not acquired by Disney back in early 2019. While Disney purchased Fox's entertainment business, including the 21st Century Fox name, Fox Corp. consists of the Broadcasting, TV Stations, News, Business and Sports segments.

On Nov. 2, shares of Fox traded around $26.89 for a market cap of $16.19 billion. The share price is down 31% since selling off 21st Century Fox.

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GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 5 out of 10. The cash-debt ratio of 0.55 is about average for the industry, while the Altman Z-Score of 2.01 puts the company in the grey zone for potential liquidity issues. The operating margin has nearly recovered from the drop at the end of 2019, though the net margin has not.

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Walt Disney

The firm also added 141,122 shares, or 4.84%, to its investment in Walt Disney for a portfolio impact of 0.26%. During the quarter, shares traded for an average price of $124.91.

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The iconic mass media company is one of the largest producers of entertainment in the U.S. Based in Los Angeles, the multinational diversified media company produces movies and shows, owns and operates theme parks and provides streaming services such as ESPN+, Hulu and Disney+.

On Nov. 2, shares of Disney traded around $120.13 for a market cap of $217.08 billion. According to the GuruFocus Value Line, the stock is modestly overvalued.

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GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.36 and Altman Z-Score of 1.81 show potential liquidity issues. The return on invested capital has been below the weighted average cost of capital since mid-2019, indicating that the company is earning a negative return on investments in its business.

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Amerco

The firm increased its Amerco holding by 47,453 shares, or 22.86%, impacting the equity portfolio by 0.25%. Shares traded for an average price of $340.43 during the quarter.

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Nevada-based Amerco is the parent company for U-Haul, AMERCO Real Estate Company, Republic Western Insurance Company and Oxford Life Insurance Company. Its subsidiaries mainly deal with insurance, real estate and the moving process.

On Nov. 2, shares of Amerco traded around $351.45 for a market cap of $6.89 billion. According to the GuruFocus Value Line, the stock is fairly valued.

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GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.17 is lower than 80% of industry competitors, while the Altman Z-Score of 1.3 indicates the company could face liquidity issues in the next couple of years. The company has a three-year revenue growth rate of 5.1%, but a three-year Ebitda growth rate of -0.6%.

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Coca-Cola

Yacktman Asset Management (Trades, Portfolio) also added 339,234 shares, or 5.51%, to its Coca-Cola holding, which had a 0.25% impact on the equity portfolio. During the quarter, shares traded for an average price of $48.09.

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The iconic multinational beverage company is based in Atlanta and is home to brands such as Coca-Cola, Dasani, Fanta, Minute Maid and Powerade. However, the company recently announced that it will be discontinuing approximately 200 (or half) of its brands, including Zico and Tab.

On Nov. 2, shares of Coca-Cola traded around $48.62 for a market cap of $208.94 billion. According to the GuruFocus Value Line, the stock is fairly valued.

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GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 0.38 is lower than the industry median of 0.57, though the Altman Z-Score of 3.34 implies that the company is financially stable and should have no need to be concerned about raising additional financing. The ROIC is consistently higher than the WACC, indicating that Coca-Cola is creating value for shareholders.

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Portfolio overview

As of the quarter's end, the equity portfolio consists of holdings in 60 stocks valued at $6.75 billion. The turnover rate for the quarter was 4%.

The firm's top holdings were PepsiCo Inc. (PEP) with 6.79% of the equity portfolio, Procter & Gamble (PG) with 6.74% and Microsoft (MSFT) with 5.88%. In terms of sector weighting, the firm was most invested in consumer defensive, communication services and technology.

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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. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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