We increased the Fund’s weightings in Fox (NASDAQ:FOX) and P&G during the quarter because we think their declines were overdone and more related to short-term sentiment issues than long-term value.
In August, the media sector experienced a full-fledged panic after Disney reported weaker subscriber numbers at its ESPN segment. While there are changes in the traditional U.S. media model, we think that Fox (NASDAQ:FOX) is extremely well positioned to navigate the challenges due to highly-rated content that benefits from live viewing (such as sports) along with a strong, growing international presence.
We think Fox is being penalized in the near term because the company has made significant investments which have impacted current earnings but will lead to longer-term growth. In the next 12 months, we expect to see strong profit margin recovery as many of the costs of these growth investments moderate. In addition, Fox has significant value in equity holdings which we think are largely being ignored at the current share price. Our penchant for long-term investing means that there are times when some of our favorite positions are out of favor, even when we think the long-term investment thesis is intact. In these circumstances, our response is often to increase the Fund’s weighting in these out-of-favor companies, a playbook we followed with Fox during the third quarter.
From Donald Yacktman (Trades, Portfolio)'s third quarter 2015 commentary.
