Yacktman Fund's Top 5 1st-Quarter Trades

Texas-based fund reveals stake in Buffett's conglomerate

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James Li
Apr 19, 2021
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The

Yacktman Fund (Trades, Portfolio), part of Austin-based Yacktman Asset Management (Trades, Portfolio), disclosed late last week that its top five trades during the first quarter included a reduction in its Macy's Inc. (M, Financial) holding and new buys in the following four companies: Canadian Natural Resources Ltd. (CNQ, Financial), Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial), Northrop Grumman Corp. (NOC, Financial) and Lockheed Martin Corp. (LMT, Financial).

Managed by Stephen Yacktman and Jason Subotky, the fund seeks long-term capital appreciation through investments in the common stock of companies that have good value and growth potential. Emphasis is placed on three factors: good business, shareholder-oriented management and low purchase price. The fund said in its fourth-quarter 2020 letter that it returned 20.46%, outperforming the Russell 1000 index return of 16.25%.

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As of March 31, the fund's $7.11 billion equity portfolio contains 58 stocks, with eight new positions and a turnover ratio of 8%. The top four sectors in terms of weight are consumer staples, communication services, technology and financial services, representing 20.95%, 19.97%, 18.60% and 12.36% of the equity portfolio.

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Macy's

The fund sold 8.7 million shares of Macy's (

M, Financial), axing 63.04% of the position and 1.54% of the equity portfolio. Shares averaged $15.26 during the first quarter; the stock is modestly overvalued based on Monday's price-to-GF Value ratio of 1.19.

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The fund said in its letter that Macy's share price nearly doubled during the fourth quarter of 2020 as Covid-19 vaccine progress increased the possible return to a "more normal environment" during 2021.

The New York-based omnichannel retailer said in its fiscal 2020 annual report that net sales for the 12 months ending January 2021 declined approximately 29.4% from fiscal 2019 sales, driven primarily by lower comparable stores during the first and second quarters of fiscal 2020. Despite the pandemic lowering foot traffic in brick-and-mortar stores, digital sales as a percentage of net sales surged to 44.3% in fiscal 2020 compared to 25.3% for the 12 months ending January 2020.

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GuruFocus ranks the retailer's financial strength 3 out of 10 on several warning signs, which include a low Piotroski F-score of 3, a weak Altman Z-score of 0.75 and a debt-to-equity ratio that underperforms over 90% of global competitors.

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The

Yacktman Focused Fund (Trades, Portfolio) also reduced its holding in Macy's.

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Canadian Natural Resources

The fund purchased 4,295,331 shares of Canadian Natural Resources (

CNQ, Financial), giving the position 1.86% weight in the equity portfolio. Shares averaged $27.6 during the first quarter; the stock is modestly overvalued based on Monday's price-to-GF Value ratio of 1.17.

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GuruFocus ranks the Calgary, Alberta-based energy company's profitability 6 out of 10 on the back of net margins and returns outperforming more than 56% of global competitors. Despite this, the company's financial strength ranks 3 out of 10 on the back of a low Altman Z-score of 1.28 and a debt-to-equity ratio that underperforms over 60% of global energy companies.

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Other gurus with holdings in Canadian Natural Resources include

Pioneer Investments (Trades, Portfolio) and Steven Cohen (Trades, Portfolio)'s Point72 Asset Management.

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Berkshire Hathaway

The fund purchased 340,000 Class B shares of Berkshire Hathaway (

BRK.B, Financial), giving the position 1.22% weight in the equity portfolio. Shares averaged $242.84 during the first quarter; the stock is fairly valued based on Monday's price-to-GF Value ratio of 1.08.

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Co-managed by

Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio), the Omaha, Nebraska-based insurance conglomerate seeks investments in "good companies with fair prices" according to a four-criterion investing approach.

GuruFocus ranks Berkshire's profitability 7 out of 10 on several positive investing signs, which include net profit margins and returns outperforming over 70% of global competitors.

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Northrop Grumman

The fund purchased 225,000 shares of Northrop Grumman (

NOC, Financial), giving the position 1.02% weight in the equity portfolio. Shares averaged $301.43 during the first quarter; the stock is fairly valued based on Monday's price-to-GF Value ratio of 0.92.

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GuruFocus ranks the Falls Church, Virginia-based aerospace and defense company's profitability 9 out of 10 on several positive investing signs, which include profit margins and returns outperforming over 80% of global competitors.

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Lockheed Martin

The fund purchased 195,000 shares of Lockheed Martin (

LMT, Financial), giving the position 1.01% weight in the equity portfolio. Shares averaged $342.99 during the quarter; the stock is fairly valued based on Monday's price-to-GF Value ratio of 0.93.

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GuruFocus ranks the Bethesda, Maryland-based aerospace and defense company's profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 8 and profit margins and returns outperforming over 78% of global competitors.

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Disclosure: No positions.

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I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!