The Yacktman Focused Fund (Trades, Portfolio) disclosed its third-quarter portfolio earlier this week.
Part of Austin, Texas-based Yacktman Asset Management (Trades, Portfolio), the fund is managed by Stephen Yacktman and Jason Subotky. It primarily invests in large-cap U.S. companies to generate long-term capital appreciation and current income. When picking stocks, the portfolio managers look for good businesses that have shareholder-oriented management teams and are trading at low prices.
With these criteria in mind, the firm entered two new positions during the three months ended Sept. 30, sold out of five stocks and added to or reduced a number of other existing holdings. The most notable trades for the period included a new stake in Weatherford International PLC (WFRD, Financial), boosts to the Associated British Foods PLC (LSE:ABF, Financial), Canadian Natural Resources Ltd. (CNQ, Financial) and Cognizant Technology Solutions Corp. (CTSH, Financial) positions and the divestment of Sodexo (XPAR:SW, Financial).
Weatherford International
The fund invested in 2 million shares of Weatherford International (WFRD, Financial), allocating 1.11% of the equity portfolio to the stake. The stock traded for an average price of $16.65 per share during the quarter.
The Houston-based oilfield services company has a $1.95 billion market cap; its shares were trading around $27.75 on Wednesday with a price-book ratio of 1.19 and a price-sales ratio of 0.26.
The GF Value Line suggests the stock is significantly overvalued currently based on its historical ratios, past performance and future earnings projections.
GuruFocus rated Weatherford International’s financial strength 3 out of 10. As a result of issuing approximately $1.4 billion in new long-term debt over the past three years, the company has weak interest coverage. The low Altman Z-Score of 0.51 warns the company could be at risk of going bankrupt if it does not improve its liquidity. The Sloan ratio is also indicative of poor earnings quality. The return on invested capital is overshadowed by the weighted average cost of capital, suggesting the company is struggling to create value as it grows.
The company’s profitability did not fare much better, scoring a 4 out of 10 rating on the back of negative margins and returns on equity, assets and capital that underperform at least half of its competitors. Weatherford also has a moderate Piotroski F-Score of 5 out of 9, meaning conditions are typical for a stable company. Although it has recorded a loss in operating income in recent years, the company has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
While the Focused Fund holds 2.85% of Weatherford’s outstanding shares, the Yacktman Fund (Trades, Portfolio) and Yacktman Asset Management (Trades, Portfolio) have 5.56% and 10.27% stakes.
Associated British Foods
With an impact of 0.98% on the equity portfolio, Yacktman increased its Associated British Foods (LSE:ABF, Financial) position by 37.84%, buying 1.4 million shares. Shares traded for an average price of 20.19 pounds ($27.89) each during the quarter.
The fund now holds 5.1 million shares total, which account for 3.58% of the equity portfolio and is its eighth-largest holding. GuruFocus estimates it has lost 15.67% on the investment since establishing it in the fourth quarter of 2019.
The British food processing company has a market cap of 14.17 billion pounds; its shares closed at 17.90 pounds on Tuesday with a price-earnings ratio of 35.38, a price-book ratio of 1.48 and a price-sales ratio of 1.13.
According to the GF Value Line, the stock is modestly undervalued currently.
Associated British Foods’ financial strength was rated 5 out of 10 by GuruFocus. Although the company has weak interest coverage and assets are building up at a faster rate than revenue is growing, the Altman Z-Score of 3.13 indicates it is in good standing. The WACC also eclipses the ROIC, indicating the company struggles to create value.
The company’s profitability fared better with a 7 out of 10 rating. In addition to a declining operating margin, Associated British Foods’ returns underperform over half of its industry peers. It also has a moderate Piotroski F-Score of 5, but the 3.5-star predictability rank is on watch as a result of recording declining revenue per share in the past five years. GuruFocus says companies with this rank return an average of 9.3% annually.
The Yacktman Fund (Trades, Portfolio) has the largest position in Associated British Foods, holding 0.76% of its outstanding shares. The iShares MSCI ACWI ex U.S. ETF (Trades, Portfolio) also owns the stock.
Canadian Natural Resources
Impacting the equity portfolio by 0.93%, the Focused Fund upped its Canadian Natural Resources (CNQ, Financial) holding by 25.71%, buying 900,000 shares. During the quarter, the stock traded for an average per-share price of $33.69.
The fund now holds 4.4 million shares, representing 4.53% of the equity portfolio and has moved up to be its fifth-largest holding. GuruFocus data shows it has gained an estimated 38.09% on the investment since the first quarter.
The Canadian oil and gas producer has a $50.47 billion market cap; its shares were trading around $42.75 on Wednesday with a price-earnings ratio of 15.38, a price-book ratio of 1.83 and a price-sales ratio of 2.62.
Based on the GF Value Line, the stock appears to be modestly overvalued currently.
GuruFocus rated Canadian Natural Resources’ financial strength 4 out of 10. In addition to having insufficient interest coverage, the low Altman Z-Score of 1.92 indicates the company is under some pressure since revenue per share has declined in recent years. The ROIC has also fallen below the WACC, indicating it struggles to create value.
The company’s profitability scored a 6 out of 10 rating, driven by margins and returns that top over half of its competitors. Canadian Natural Resources also has a high Piotroski F-Score of 7, which means operations are healthy, and a one-star predictability rank.
Of the gurus invested in Canadian Natural Resources, Yacktman Asset Management (Trades, Portfolio) has the largest stake with 1.08% of its outstanding shares. Pioneer Investments, Steven Cohen (Trades, Portfolio), azValor Internacional FI, Jeremy Grantham (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), azValor Blue Chips FI and Ray Dalio (Trades, Portfolio) also own the stock.
Cognizant Technology Solutions
The fund increased its Cognizant (CTSH, Financial) stake by 41.5%, picking up 435,800 shares. The transaction had an impact of 0.91% on the equity portfolio. The stock traded for an average price of $73.76 per share during the quarter.
It now holds 1.48 million shares total, which make up 3.11% of the equity portfolio. According to GuruFocus, the fund has gained 18.81% on the investment since the second quarter of 2017.
Headquartered in Teaneck, New Jersey, the global information technology services provider has a market cap of $41.72 billion; its shares were trading around $79.02 on Wednesday with a price-earnings ratio of 25.09, a price-book ratio of 3.7 and a price-sales ratio of 2.42.
The GF Value Line suggests the stock is fairly valued currently.
Cognizant’s financial strength was rated 7 out of 10 by GuruFocus on the back of comfortable interest coverage. The robust Altman Z-Score of 7.17 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC also exceeds the WACC, indicating value is being created.
The company’s profitability scored an 8 out of 10 rating. While its margins are in decline, returns are outperforming over half its industry peers. Cognizant also has a moderate Piotroski F-Score of 6 and steady earnings and revenue growth contributed to a three-star predictability rank. GuruFocus data shows companies with this rank return, on average, 8.2% annually.
With a 5.56% stake, Dodge & Cox is the company’s largest guru shareholder. Other gurus with notable positions include Richard Pzena (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Diamond Hill Capital (Trades, Portfolio), Al Gore (Trades, Portfolio), Pioneer Investments and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
Sodexo
With an impact of -0.91% on the equity portfolio, Yacktman sold its 350,000 remaining shares of Sodexo (XPAR:SW, Financial). During the quarter, shares traded for an average price of 72.68 euros ($84.65) each.
GuruFocus estimates the fund gained 9.06% on the investment over its lifetime.
The French food service company, which provides catering as well as facilities management services, has a market cap of 10.89 billion euros; its shares closed at 74.40 euros on Tuesday with a price-book ratio of 3.72 and a price-sales ratio of 0.68.
According to the GF Value Line, the stock is fairly valued currently.
GuruFocus rated Sodexo’s financial strength 3 out of 10. As a result of issuing approximately 1.4 billion euros in new long-term debt over the past three years, the company has weak interest coverage. The Altman Z-Score of 1.55 also warns the company could be at risk of bankruptcy.
The company’s profitability fared better with a 6 out of 10 rating. In addition to declining margins, Sodexo has negative returns that underperform a majority of competitors as well as a low Piotroski F-Score of 3, meaning operations are in poor shape. Due to declining revenue per share, the one-star predictability rank is also on watch.
The iShares MSCI ACWI ex U.S. ETF (Trades, Portfolio) has a 0.01% position in the stock.
Additional trades and portfolio performance
During the quarter, the Focused Fund also added to its holdings of Amerco Inc. (UHAL, Financial) and KT&G Corp (XKRX:033780, Financial) as well as reduced its position in Macy’s Inc. (M, Financial). The other newcomer to the portfolio was Vitesco Technologies Group AG (XTER:VTSC, Financial). Yacktman also sold out of its ConocoPhillips (COP, Financial), Cisco Systems Inc. (CSCO, Financial) and ExxonMobil Corp (XOM, Financial) holdings.
The fund’s $3.59 billion equity portfolio, which is composed of 55 stocks, is largely invested in the consumer defensive, technology and communication services sectors.
The Focused Fund returned 17.26% in 2020, slightly underperforming the S&P 500’s 18.4% return.
