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The Science of Hitting
The Science of Hitting
Articles (456) 

Yacktman on P&G: "Great Buying Opportunity"

June 21, 2012 | About:

GuruFocus offers an invaluable resource (at least for me): it aggregates the trades of dozens of the most successful investors in real time in one convenient location. While I don't have time to go through every manager and analyze every trade, there are some managers that I keep a close eye on - and Donald Yacktman is near the top of that list.

Donald Yacktman is the manager of the Yacktman Funds ($17B AUM), which have finished in the top 1% among their peers over the past 5 (9.29% annualized) and 10 year periods. The top five holdings in the Focused Fund are currently Procter & Gamble (PG), News Corp (NWSA), PepsiCo (PEP), Microsoft (MSFT), and Sysco (SYY).

In a CNBC interview Thursday, Yacktman talked about some of his top holdings, many of which have been in the news as of late. In regards to Procter & Gamble, which recently decreased earnings guidance for the upcoming quarter and announced plans to focus on key international country/category combinations (and fell more than 3% on the news), Mr. Yacktman said the following:

“I think Procter & Gamble is a great illustration of the difference between being a short-term investor versus a long-term investor. Most short-term investors would probably shy away from it; long-term investors would probably look and say this is a great bargain long term and a great buying opportunity.”

I’ll continue to point to this until I’m blue in the face: P&G’s yield is twice that of ten year treasuries, and offers the added benefit of protection against inflation. In the past forty years, P&G has fallen by more than 3% roughly three times every year (on average), with people likely pointing out that Procter & Gamble isn’t the company that it used to be on numerous occasions.

Personally, I think that investors would be much better served to ask some basic questions, rather than looking to the stock price for their conclusions: Has anything material happened? Is the company’s sustainable competitive advantage dissipating? In the case of P&G, I would answer with a resounding no; despite the short term volatility, the moat is just as wide as it was three months ago.

About the author:

The Science of Hitting
I'm a value investor with a long-term focus. As it relates to portfolio construction, my goal is to make a small number of meaningful decisions a year. In the words of Charlie Munger, my preferred approach to investing is "patience followed by pretty aggressive conduct". I run a concentrated portfolio, with a handful of equities accounting for the majority of its value. In the eyes of a businessman, I believe this is sufficient diversification.

Rating: 4.2/5 (19 votes)


Tonyg34 - 5 years ago    Report SPAM
always fun to compare and contrast,

didn't Buffet make some recent comments about P&G losing its pricing power to store brands
The Science of Hitting
The Science of Hitting - 5 years ago    Report SPAM

I haven't heard those specific comments, but I would not be surprised - and I think it is true; as P&G has noted, they need to get back to marketing that focuses on "compelling claims". For example, they are currently running ads on Tide Pods explaining that using one Pod is as effective as using six of their main competitors single dose cleaners combined; this has helped them to grab roughly 70% of the single serve laundry market (which is 5% of total U.S. laundry) despite early production issues.

The reality is that P&G spends more on R&D than many of their closest competitors combined; if they cannot develop products that are materially better than "me too" private label brands, then they will not be able to (nor do they deserve to) hold market share - especially in periods like the current one where the average consumer is extremely price sensitive (whether or not people stay like that in the good times, regardless of what they tell you in middle of a recession, is an unknown in my opinion).

Thanks for the comment!
Kfh227 - 5 years ago    Report SPAM
It's typical during a recession for companies to loose market share to generic alternatives. And they always get share back when the economy gets better.

Simple example. trust your kid with JNJ or PG branded vitamins or the generic? In a recession maybe cost matters. But when things get better, some of those people will move to PG/JNJ.
The Science of Hitting
The Science of Hitting - 5 years ago    Report SPAM

I generally agree, with one important caveat: the products must be of higher quality. I think in an age of increased transparency, they will have trouble competing with sounds retailers (Publix in my region) that have strong brand equity at the retail level, which corresponds to the private label offerings. With that being said, P&G is 175 years old - and I believe that they have a competitive position in the industry that will make them materially stronger 10, 20, and 50 years from today.
Jonmonsea premium member - 5 years ago
yes it seems that buffett has implicitly soured on the economics of the business and may be selling it down to a smaller percentage. this contrasts with his comments over the past few years to the effect that even tho he is sellingp, those who buy and hold pg will make 'a lot of money'....bill gross and yactman have said it's a good stock to own, tho. doesnt it seem more expensive than other inflation hedges tho, at a pe multiple closer to 20 than10?
Sjzhao2003 - 5 years ago    Report SPAM
Yacktman is a very admirable investor. But I generally use a simple screening tool before every investment: Is it a better value than BRK? Most of the time, it's a NO. PG unfortunately is a NO. Its pricing power for many of its brands has deteriorated significantly over time (except Olay and Gillette, perhaps). Just compare Brawny with Costco's paper towel, you'll see Brawny is far inferior and more expensive. So why bother?
Praveen Chawla
Praveen Chawla premium member - 5 years ago
P&G never recovered its pricing power from the last recession and now may be going for a double dip. It may be possible to pick up shares in the mid 50's or lower (@PE 15) later in the summer.

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