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Sydnee Gatewood
Sydnee Gatewood
Articles (846) 

Yacktman Focused Fund Buys 3 Stocks in 2nd Quarter

The fund’s largest purchase was Macy’s

The Yacktman Focused Fund (Trades, Portfolio), part of Yacktman Asset Management (Trades, Portfolio), disclosed three new positions in its second-quarter portfolio on Monday.

Managed by Stephen Yacktman and Jason Subotky, the Austin, Texas-based fund primarily invests in large-cap U.S. companies to generate long-term capital appreciation and current income. When picking stocks, the portfolio managers look for good businesses that have shareholder-oriented management teams and are trading at low purchase prices.

Based on these criteria, the fund established positions in Macy’s Inc. (NYSE:M), News Corp. (NASDAQ:NWSA) and Rinnai Corp. (TSE:5947) during the quarter.

Macy’s

The Focused Fund invested in 3.5 million shares of Macy’s, dedicating 2.67% of the equity portfolio to the stake. The stock traded for an average price of $22.75 per share during the quarter.

The Cincinnati-based department store chain has a $6.81 billion market cap; its shares were trading around $22.17 on Tuesday with a price-earnings ratio of 6.21, a price-book ratio of 1.09 and a price-sales ratio of 0.28.

The Peter Lynch chart shows the stock is trading below fair value, suggesting it is undervalued.

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Supported by sufficient interest coverage, GuruFocus rated Macy’s financial strength 5.5 out of 10. The Altman Z-Score of 2.34, however, indicates the company is under minor fiscal pressure.

The company’s profitability and growth scored a 5 out of 10 rating. Although the operating margin is in decline, it still outperforms 53% of competitors. While the retailer is also supported by strong margins, the low Piotroski F-Score of 3 implies poor operating conditions. Macy’s also has a business predictability rank of one out of five stars, which is on watch as a result of a decline in revenue per share over the last 12 months. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.

The Yacktman Fund (Trades, Portfolio), which is also managed by the firm, has the largest position in Macy’s with 1.94% of outstanding shares. Other guru shareholders include Jim Simons' (Trades, Portfolio) Renaissance Technologies, Ray Dalio (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), John Hussman (Trades, Portfolio), the CI Can Am Small Cap (Trades, Portfolio) Fund, Steven Cohen (Trades, Portfolio), Philippe Laffont (Trades, Portfolio), Richard Snow (Trades, Portfolio) and Dodge & Cox.

News Corp.

After exiting a position in News Corp. in the fourth quarter of 2013, the fund entered a new 338,725-share holding. The trade had an impact of 0.16% on the equity portfolio. During the quarter, the stock traded for an average price of $12.22 per share.

The media company, which is headquartered in New York, has a $7.9 billion market cap; its shares were trading around $13.40 on Tuesday with a price-book ratio of 0.85 and a price-sales ratio of 0.76.

According to the median price-sales chart, the stock is undervalued since it is trading below its historical average.

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The media company’s financial strength was rated 6.5 out of 10 by GuruFocus. While it has adequate interest coverage, the Altman Z-Score of 1.39 warns the company could be at risk of going bankrupt.

The company’s profitability and growth did not fare as well, scoring a 4 out of 10 rating on the back of weak margins and returns that underperform a majority of industry peers. The moderate Piotroski F-Score of 4, however, suggests operating conditions are stable.

Of the gurus invested in the company, Richard Pzena (Trades, Portfolio) has the largest holding with 3.77% of outstanding shares. Other top guru shareholders are Bill Nygren (Trades, Portfolio), Dodge & Cox, Hotchkis & Wiley, the T Rowe Price Equity Income Fund (Trades, Portfolio), Charles de Vaulx (Trades, Portfolio), the IVA International Fund (Trades, Portfolio), Greenblatt, Michael Price (Trades, Portfolio), Gabelli, Pioneer Investments (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Murray Stahl (Trades, Portfolio).

Rinnai

The fund managers picked up 7,233 shares of Rinnai, allocating 0.02% of the equity portfolio to the holding. Shares traded for an average price of 7,329.23 yen ($67.75) during the quarter.

The Japanese manufacturer of gas appliances, including water heaters and home heating systems, has a market cap of 362.37 billion yen; its shares closed at 7,050 yen on Monday with a price-earnings ratio of 17.54, a price-book ratio of 1.20 and a price-sales ratio of 1.04.

Based on the Peter Lynch chart, the stock appears to be overvalued.

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Driven by no long-term debt and comfortable interest coverage, GuruFocus rated Rinnai’s financial strength 9.3 out of 10. In addition, the robust Altman Z-Score of 4.50 suggests the company is in good financial standing.

The company’s profitability and growth scored a 7 out of 10 rating. Although the operating margin is in decline, it still outperforms over half of its competitors. Rinnai also has a moderate Piotroski F-Score of 4 and a 2.5-star business predictability rank, which is on watch due to a slowdown in revenue per share growth over the last 12 months. GuruFocus says companies with this rank typically see their stocks gain an average of 7.3% per year.

The Focused Fund holds 0.01% of the company’s outstanding shares.

Additional trades

During the quarter, the fund also added to its positions in Cognizant Technology Solutions Corp. (NASDAQ:CTSH), Bollore SA (XPAR:BOL), Brenntag AG (XTER:BNR) and Aggreko PLC (LSE:AGK).

The fund’s $2.82 billion equity portfolio, which is composed of 28 stocks, is heavily invested in the technology, consumer defensive and consumer cyclical sectors.

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According to GuruFocus data, the fund posted a 2.88% return in 2018, outperforming the S&P 500 Index’s return of -4.38%.

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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