The majority of the activity in the Yacktman Focused Fund (Trades, Portfolio)’s portfolio was trimming positions during the first quarter of 2015. The fund reduced its holdings in 13 stocks, and added to its stakes in four.
The Focused Fund is a non-diversified fund that seeks long-term capital appreciation. Consumer defensive stocks account for the majority of the portfolio at 40%, followed by technology at 23.4%, and consumer cyclical at 15%.
The following are the three largest reductions in terms of portfolio impact during the quarter.
The fund cut its position in Clorox by more than 90%, selling 950,000 shares of Clorox for an average price of $108.56 per share. The fund now owns 100,000 shares in the company.
Clorox manufactures cleaning and household products such as Clorox bleach, Pine-Sol, Formula 409, and Tilex. The household segment includes products like cat litter, plastic bags, and containers.
The stock price has risen 22% over the past year and now trades at $108.97, with a P/E ratio of 27.3 and P/S ratio of 2.55. EBIT per share in 2014 remained unchanged from the year before at $7.33. Over the past five years, this figure has risen 5.75%.
Clorox’s current ratio dipped below 1 in 2014, meaning the company cannot cover its short-term obligations. Long-term debt that year totaled $1,595 million.
The current dividend yield is 2.73%, which is close to the five-year low, while the payout ratio is 66%.
Cisco Systems (CSCO, Financial)
Yacktman trimmed the position in Cisco by 3,655,000 shares, selling them for an average price of $28.15 per share. The holding now consists of 18,400,000 shares.
The stock price increased 22% over the past year and currently trades at $28.69 with a P/E ratio of 17.3 and P/S ratio of 3.1. Portfolio manager Donald Yacktman (Trades, Portfolio) wrote in the annual report that Cisco was a major positive contributor during the quarter because its shares rallied due to improved business execution.
GuruFocus rates Cisco’s business predictability as 4 out of 5 stars. The DCF model projects a fair value of $21.38, giving a margin of safety of -35%. However, when comparing the stock price with the Peter Lynch earnings line, the stock appears to be near its fair valuation.
Over the past five years, Cisco’s EBIT per share has increased 6.72%, and recorded at $1.77 in 2014. This is down from $2.08 the year before.
The current dividend yield is 2.73%, while the payout ratio is 45%.
The fund sold 837,000 shares of its holding in PepsiCo for an average price of $96.75 per share, leaving 9,500,000 shares in the position. The fund has been trimming the position for several quarters now as the stock price increases steadily.
The stock price has increased 12% over the past year and now trades for $96.08 with a P/E ratio of 23.1 and P/S ratio of 2.23. The beverage and snack foods company has an excellent business predictability rating of 4.5 out of 5 stars. However, the DCF model estimates a fair value of just $48.08, which gives a -100% margin of safety.
In the annual report, Yacktman wrote that the fund likes PepsiCo due to the fact the company sells consumable products that are part of everyday life, and has significant product diversity.
In 2014, net income was $6,513 million, down from $6,740 million the year before. Over the past five years, this figure has grown just 1%; however, PepsiCo’s large size and scope should be considered with regards to its slow growth.
PepsiCo’s dividend yield is 2.7%, while the payout ratio is 59%.
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