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Holly LaFon
Holly LaFon
Articles (10163)  | Author's Website |

The Top Stocks Warren Buffett and Donald Yacktman Agree On

December 03, 2012 | About:
Warren Buffett and Donald Yacktman have much in common as investors: They both look for good, predictable, undervalued companies that they typically hold for quite a while longer than most investors.

“It’s what you buy and what you pay for it – for me, this is ultimately what this business boils down to…” Yacktman said in an interview at Texas Lutheran. “By being disciplined and buying at low prices, you’re shifting the odds in your favor.”

Through their strategies, they have both also produced superior returns. Yacktman beat the S&P 500’s return 174.5 to 34.9 cumulatively over the past 10 years; Buffett XYZ

According to GuruFocus’ Aggregated Portfolio of Gurus, these are the top stocks the two investors own in common: Procter & Gamble (NYSE:PG), Viacom (VIA) and Johnson & Johnson (NYSE:JNJ).

Procter & Gamble (NYSE:PG)

Donald Yacktman owns 27,781,353 shares of PG, valued as $1.93 billion as of Sept. 30, 2012, which accounts for 11.6% of his equity portfolio. Warren Buffett owns 52,793,078 shares of PG, valued as $3.66 billion as of Sept. 30, 2012, which accounts for 4.9% of his equity portfolio.

The Procter & Gamble Company is engaged in the manufacture and sale of a range of branded consumer packaged goods.

The company produced $83.7 billion in revenue in 2012, but revenue has been slowing in the last five years. The company had average revenue per share growth of 4.1% in the last five years, while EBITDA declined at a rate of 1.1%, free cash flow increased 0.9% and book value increased 2%. Over the past 10 years the same rates increased at 6.8%, 6.5%, 8.2% and 18.6%, respectively.

Return on equity and return on assets also both declined annually for the last four years:

The flagging results prompted activist investor Bill Ackman to purchase a 1% stake in P&G for $1.8 billion. On Sept. 27, he pushed for the resignation of its co-chairman and CEO, Robert McDonald, who took over in 2009, according to Reuters.

The company is a strong dividend payer. It has paid a dividend for 122 consecutive years, and increased it for the past 56 consecutive years. For the fiscal year 2012, the company has increased its expected share repurchase outlook to $4 billion to $6 billion, from $4 billion, its previous forecast.

P&G has a P/E of 18.73, P/S of 2.31 and P/B of 2.97.

Viacom (VIA)

Donald Yacktman owns 12,044,963 shares of VIAB, valued as $645 million as of Sept. 30, 2012, which accounts for 3.9% of his equity portfolio. Warren Buffett owns 7,607,200 shares of VIAB, valued as $408 million as of Sept. 30, 2012, which accounts for 0.54% of his equity portfolio.

Viacom is a global entertainment content company whose family of prominent and respected brands includes the multiplatform properties of MTV Networks, BET Networks, Paramount Pictures, Paramount Home Entertainment and DreamWorks.

In the last five years, its revenue per share increased at a rate of 50.1% annually, EBITDA at 53.4%, free cash flow at 35.2% and book value at 7.5%. Last year was below average; revenue per share increased 1%, EBITDA increased 12.8%, free cash flow declined 5.8% and book value declined 6.5%.

Viacom’s full-year 2012 declined 7% to $13.89 billion, due primarily to 19% lower theatrical and home entertainment revenues in the filmed entertainment segment. Advertising revenues also slipped 5%.

At Sept. 30, 2012, Viacom’s debt outstanding totaled $8.15 billion, including capital lease obligations, up from $7.37 billion the previous year. The company’s cash decreased to $848 million, down from $1.02 billion the previous year.

The company has also been aggressive in repurchasing its shares:

Yacktman commented on the company in his August interview with GuruFocus:

“It is also important to be flexible, and I think our behavior in the 2008-2009 period demonstrates that. With AmeriCredit (ACF), News Corp (NWS), and Viacom (VIA), all of the stocks had some risk to them, but they offered potentially breathtaking returns. So we sold of Proctor & Gamble and Johnson & Johnson , We kept some defensive positions like Coke that we thought would be durable even if the market continued to go down because we felt on balance the portfolio had enough securities that could rise dramatically if the market stabilized or recovered.”

Viacom has a market cap of $26.56 billion; its shares were traded at around $51.1 with a P/E ratio of 12.2 and P/S ratio of 1.9.

Johnson & Johnson (NYSE:JNJ)

Donald Yacktman owns 8,387,771 shares of JNJ, valued as $578 million as of Sept. 30, 2012, which accounts for 3.5% of his equity portfolio. Warren Buffett owns 492,028 shares of JNJ, valued as $34 million as of Sept. 30, 2012, which accounts for 0.045% of his equity portfolio.

Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field.

The company in the last five years produced revenue per share growth at an annual rate of 4.1%, EBITDA at 1.4%, free cash flow at 3.2% and book value growth at 9.8%. Return on equity has been in decline for the last three years, and return on equity for the last two.

In the company’s third quarter, sales were $17.1 billion, a 6.5% increased from the previous year; net earnings were $3 billion, with earnings per share of $1.05, representing increases of 2.3% and 0.8% from the previous year.

"Our third-quarter results reflected continued sales momentum driven by strong growth of key products, successful new product launches, and the addition of Synthes to our family of companies. We advanced our pipelines with regulatory approvals for a number of new products, the submission of several new drug applications, and the completion of several strategic collaborations," said Alex Gorsky, Chief Executive Officer.

Over the last 10 years, the company has been aggressively buying back shares:

Johnson & Johnson has a market cap of $192.25 billion; its shares were traded at around $69.56 with a P/E ratio of 13.8 and P/S ratio of 3.

To check the consensus holdings of any combination of your favorite Gurus, please go to Aggregated Portfolio of Gurus. This is one of the features that GuruFocus offers to Premium Members of GuruFocus. If you are not a Premium Member, why not Take a 7-Day Free Trial?

About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

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