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Holly LaFon
Holly LaFon
Articles (7842) 

Donald Yacktman Buys Financials

February 01, 2012 | About:

The Yackman Focused Fund and the Yacktman Fund appreciated 7.41% and 7.3% in a 2011, while the S&P 500 closed up 2.11%, and, according to the Wall Street Journal, the average diversified U.S. stock fund declined 2.9%. Donald Yacktman anchored his fund in solid, large-cap companies that helped it to withstand the market’s extreme volatility. The return was a decent addition to his track record, which has a five-year cumulative return of 47.2% compared to the S&P’s negative 3.1%, and a ten-year cumulative of 174.5% compared the S&P’s 32.1.

While Yacktman may have entered the financial scene, he is still doing it differently than, for instance, Bruce Berkowitz, by taking smaller positions, cautious of the continuing uncertainty. On Consuelo Mack in January he said, “The outcomes can be much wider. The array of outcomes. In other words, you could have a real disaster or you could have a spectacular upside. So as the array is wider, you end up attaching a probabilities to those outcomes, come up with a centrist rate of return, and then you want that to be quite a bit higher that what a normal rate of return would be based on the risk.”

Yacktman released his fourth-quarter buys and sells on Wednesday, according to GuruFocus’ Real Time Picks. His three largest buys are Goldman Sachs Group Inc. (NYSE:GS), Bank of America Corp. (NYSE:BAC) and State Street Corp. (NYSE:STT).

Goldman Sachs Group Inc. (NYSE:GS)

Goldman Sachs is a global investment banking and securities firm, providing a full range of investing, advisory and financing services worldwide to a substantial and diversified client base, which includes corporations, financial institutions, governments, and high net worth individuals. The Goldman Sachs Group Inc. has a market cap of $54.88 billion; its shares were traded at around $111.47 with a P/E ratio of 25.3 and P/S ratio of 1.9. The dividend yield of The Goldman Sachs Group Inc. stocks is 1.3%. The Goldman Sachs Group Inc. had an annual average earnings growth of 9.8% over the past 10 years.

Yacktman bought 647,000 shares of Goldman Sachs in the fourth quarter at an average price of $97.50. Yactkman has said that his firm makes their top conviction ideas their largest positions, and buys smaller amounts of stocks they feel are of lesser quality. This one makes up 0.5% of his 64-stock portfolio.

Goldman Sachs stock price declined more than 31% in the last year, but year to date has already advanced 25.5%. Yacktman got the stock at a major discount. Its 52-week low was $84.27 per share, slightly higher than its recession low around $53 per share in 2008. Even after the recession it has recovered to around $190, with a 52-week high of $169.90.

For the last four years, Goldman Sachs’ revenue has been declining. It was at $88 billion in 2007, with earnings of $11.6 billion, but ended 2011 with revenues of $28.81 billion, and earnings of $4.4 billion. Its financial results for the year showed declines in many areas of its business, including a return on average common shareholders’ equity that slipped to 3.7% from 10.8% in 2010.

The firm attributed the decline in results to global macro-economic concerns which “significantly affected our clients’ risk tolerance and willingness to transact,” according to Lloyd Blankfein, chairman and CEO. Meanwhile, it did keep some industry-leading positions. It continued to rank first in worldwide announced mergers and acquisitions for the calendar year; ranked first in worldwide equity and equity-related offerings, common stock offerings and initial public offerings; achieved global core excess liquidity of $172 billion; and achieved a Tier 1 capital ratio under Basel I of 13.8%, unchanged from the previous quarter.

During the year, it also repurchased 47 million shares of its stock at an average cost per share of $128, at a total cost of $6.04 billion, and will pay a dividend of $0.35 per share on March 1, 2012.

Bank of America Corp. (NYSE:BAC)

Bank of America Corp. is one of the world's financial services companies. Bank Of America Corp. has a market cap of $72.26 billion; its shares were traded at around $7.13 with and P/S ratio of 0.6. The dividend yield of Bank Of America Corp. stocks is 0.6%.

Bank of America is also a relatively small holding of Yacktman, comprising 0.25% of his portfolio. He sold out of his previous position in the bank just before its stock plunged in 2011. In the fourth quarter, he bought 5,565,000 shares at an average of $6 per share, already realizing a 20% return.

The last several years were challenging for Bank of America. Their revenue has been declining for the last three years, from $150.5 billion in 2009 to $115 billion in 2011. Net income, however, increased to $1.5 billion in 2011 from a loss of $2.2 billion in 2010, though still its lowest profit in the last 10 years.

On Wednesday, Bloomberg reported that the bank lost about three-quarters of its market share in U.S. home mortgages since 2007, due largely to defective loans. Its share of originations dropped to 5.6% in the fourth quarter, from 10 percent in the third quarter, and 24.7% in 2007.

State Street Corp. (NYSE:STT)

State Street Corporation is the world's specialist in providing sophisticated global investors with investment servicing, investment management, investment research and trading services. State Street Corp. has a market cap of $19.27 billion; its shares were traded at around $39.18 with a P/E ratio of 10.3 and P/S ratio of 2. The dividend yield of State Street Corp. stocks is 1.9%. State Street Corp. had an annual average earnings growth of 6.9% over the past 10 years.

Yacktman bought 563,000 shares of State Street Corp. in the fourth quarter at an average price of $38, representing 0.19% of his portfolio.

In many ways, State Street Corp. is faring better than Yacktman’s other financials. It has been increasing revenue each year for the past three years, from $9.4 billion in 2009 to $10.2 billion in 2011. Net income in 2011 increased to almost $2 billion, a record. It also reinstated a dividend of $0.72 per share in 2011, after cutting it to $0.04 per share in 2009 and 2010. Prior to the cut, in 2008, the dividend was $0.95 per share.

The company recorded $120 million in restructuring charges for severance-related costs for reducing its workforce, withdrawing from its fixed-income trading initiative, and for expanding its IT infrastructure.

State Street is also planning to start actively managed exchange-traded funds, in partnership with other asset managers, such as Blackstone.

CEO Joseph Hooley has also predicted weak capital markets continuing into 2012. “I’m not trying to give necessarily a negative outlook, just a realistic outlook,” Hooley said during a conference call with investors. “I don’t think anybody’s ready to predict that the most recent markets are going to sustain themselves.”

Banks are difficult to understand, not least when they are trying to rebuild after a recession. Yacktman may believe the industry is nearing a bottom, however, and will lose far less than Bruce Berkowitz, who got in too early.

For more of Donald Yacktman’s buys and sells, go here. Also check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Donald Yacktman.

Rating: 3.8/5 (12 votes)


Johnheiderscheit - 5 years ago    Report SPAM
I am a shareholder in Focus but Mr. Y is in the process of becoming a closet indexer now that he is "hot".
Kirrct - 5 years ago    Report SPAM
Did you forget avp? It appears to be his largest purchase in the quarter and he has been buying it the last two quaters. It now represents 1.35% of his portfolio per gf and seemed to dwarf the three largest purchases you highlighted. Note he mentioned buying pep was like shooting fish in a barrel on wealthtrack. Apparenty he thinks avp is even better than that. Thanks

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