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Yacktman Fund's Top 5 Buys in 2nd Quarter

Fund's top buys include positions in Macy's and News Corp

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James Li
Jul 16, 2019
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Yacktman Fund (Trades, Portfolio), part of Affiliated Managers Group Inc.’s (AMG, Financial) AMG Funds, disclosed this week its top five buys for the second quarter included new positions in Macy’s Inc. (M, Financial) and News Corp. (NWSA, Financial), and position boosts in three companies: Fox Corp. (FOX, Financial), Cognizant Technology Solutions Corp. (CTSH, Financial) and Bollore SA (XPAR:BOL, Financial).

Managed by Stephen Yacktman and Jason Subotky, the Austin-based fund seeks long-term capital appreciation through a disciplined investment strategy that combines growth investing and value investing. The fund invests in companies containing at least one of the following attributes: good business, shareholder-oriented management and low purchase price.

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As of quarter-end, the fund’s $5.77 billion equity portfolio contains 35 stocks, of which three are new positions. The fund’s top two sectors in terms of weight are consumer staples and technology, with weights of 29.05% and 27.38%.

Macy’s

The fund purchased 6 million shares of Macy’s, giving the stake 2.23% weight in the equity portfolio. Shares averaged $22.75 during the quarter.

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The Cincinnati-based retailer operates department stores, websites and mobile applications through brands like Macy’s, Bloomingdale’s and Bluemercury. The company sells a wide range of merchandise, including apparel, accessories, cosmetics, home furnishings and other consumer goods.

Macy’s announced in a June 5 quarterly report that even though net sales for the three months ending May 4 declined 0.7% from net sales during the prior-year quarter, comparable sales on an owned basis increased 0.6% year over year, driven by double-digit gains in digital sales across all three brands.

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GuruFocus ranks the company’s profitability 5 out of 10: Although the return on equity outperforms 75% of global competitors, Macy’s has a weak Piotroski F-score of 3 and operating margins that outperform just 53.64% of global apparel and specialty retailers.

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Other gurus with holdings in Macy’s include

Jim Simons (Trades, Portfolio)' Renaissance Technologies, the Yacktman Focused Fund (Trades, Portfolio) and Ray Dalio (Trades, Portfolio)’s Bridgewater Associates.

News

The fund purchased 600,146 shares of News, giving the position 0.14% equity portfolio space. Shares averaged $12.22 during the quarter.

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The New York-based company operates media platforms like the Wall Street Journal, Herald Sun and The Times. GuruFocus ranks News’ financial strength 6.5 out of 10: Even though the company’s Altman Z-score of 1.39 suggests possible financial distress, its debt-to-equity ratio of 0.17 outperforms 71.38% of global competitors.

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Fox

The fund added 416,667 Class C shares of Fox, increasing the holding 15.53% and the equity portfolio 0.26%. Shares averaged $36.32 during the quarter.

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Yacktman and Subotky said in their March-quarter shareholder letter that the completion of The Walt Disney Co.’s (

DIS, Financial) acquisition of Twenty-First Century Fox Inc. on March 20, a major event during early 2019, resulted in the fund receiving shares of Disney and the Fox spinoff containing businesses Fox News, Fox Sports and the Fox network.

The fund managers also quoted

Stanley Druckenmiller (Trades, Portfolio), partner of George Soros (Trades, Portfolio)’ Soros Fund Management from 1988 to 2000, saying that one way to make long-term returns is by “being a pig.” Yacktman and Subotky like to invest in companies “run by management with a significant ownership stake.” The fund managers expect that the Murdoch family will continue guiding the fund’s investments in Fox and News, something the Murdoch family has done for over the past 10 years according to Yacktman and Subotky.

According to GuruFocus data, Fox Corp’s operating margin of 21.06% outperforms 80.70% of global competitors, suggesting good profitability potential.

Cognizant Technology

The fund added 730,000 shares of Cognizant Technology, increasing the holding 115.87% and the equity portfolio 0.80%. Shares averaged $65.64 during the quarter.

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The Teaneck, New Jersey-based company provides technology consulting, application outsourcing, systems integration, business process services and cloud services. GuruFocus ranks Cognizant Technology’s financial strength and profitability 8 out of 10 on several positive signs, which include solid interest coverage of 94.54 and operating margins that are outperforming 69% of global competitors despite contracting approximately 2.1% per year over the past five years.

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Additionally, Cognizant Technology’s business predictability ranks four stars out of five on consistent revenue and earnings growth over the past 10 years.

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Bollore

The fund added 6,360,422 shares of Bollore, increasing the stake 8.84% and the equity portfolio 0.49%. Shares averaged 4.08 euros ($4.58) during the quarter.

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The French infrastructure company operates four business segments: transportation and logistics, oil logistics, communication and electricity storage and solutions. GuruFocus ranks Bollore’s profitability 7 out of 10 on several positive signs, which include a 3.5-star business predictability rank and a

Joel Greenblatt (Trades, Portfolio) return on capital that outperforms 91.07% of global competitors.

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Disclosure: No positions.

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