Donald Yacktman is president and co-CIO of Yacktman Asset Management Company. Yacktman served as senior portfolio manager of the Selected American Shares (SLASX) mutual fund. He was named the Portfolio Manager of the Year by Morningstar in 1991. Yacktman is a graduate of Ohio State University, and earned his MBA with distinction from Harvard University. Yacktman Asset Management offers two funds to its clients: Yacktman Focused Fund (YAFFX), and Yacktman Fund (YACKX). The 10-year annualized performance of YAFFX and YACKX is 12.29% and 11.35%, respectively. For comparison, the S&P 500's (SPY) annual return was 2.61% during the same period.
According to Edgar Online, as of June 30, Yacktman has $9.125 billion of assets invested in the U.S. securities. The partnership mostly invests in services (29.47%), non-cyclical consumer goods (27.45%), technology (17.48%), and healthcare [14.52%]. Yacktman significantly increased the technology holdings in the last quarter. Here's a brief analysis of Yacktman’s seven big buys (data from finviz/morningstar and is current as of Aug. 2's close).
Cisco (CSCO), the star of the techno-bubble times, has been one of the most disappointing stocks in the market. Cisco’s business is pretty profitable, but the stock has been going south for almost a year. As of the Aug. 2 close, Cisco was trading at $15.46, which makes it a cheap deal. Cisco sports a market cap of $85 billion, a ttm P/E ratio of 12.17 and a forward P/E ratio of 9.15. The company has a 5-star rating from Morningstar. My Fed + Fair Value estimate for Cisco is $23 per share. The company has an O-Metrix score of 6.5. (Details here.) Yacktman holds 29.6 million shares worth $468 million. He increased his holdings by 168% in the last quarter. He invested 5.14% of his portfolio in Cisco and owns 0.54% of the company.
News Corp (NWSA) is the largest media conglomerate in the world in terms of revenues. CEO Rupert Murdoch is going through tough times. However, the management has strong support from the shareholders. As of Aug. 2, it has a $40.16 billion market value. P/E ratio is 13.77, as the forward P/E ratio is 11.41. The corporation’s current dividend yield is 0.98%. Its profit margins are more or less at industry standards. Gross margin is 36.49% and operating margin is 11.95%. Although EPS growth in the past five years was 6.85%, EPS growth in the next five years is expected at 14.11%. The stock is testing its $15 resistance levels. RBC has a target of $20, implying 25% upside potential in an intermediate term. Yacktman invested 11.7% of his portfolio in News Corp. He holds 66.3 million shares worth $1.67 billion. He increased his holdings by 13.5% in the last quarter and owns 3.63% of the company.
Microsoft (MSFT): With a gross margin of 78% and a net profit margin of 31.76%, Microsoft is one of the most profitable technology companies. However, the Street does not appreciate Microsoft’s profitability. The ytd return is -2.79%, and one-year return is only 4.93%. Market cap of Microsoft is $226 billion. The stock is significantly undervalued with a trailing P/E ratio of 9.93 and forward P/E ratio of 8.45. It has an O-Metrix score of 7, which is well above the market score. My Fed + fair value estimate for Microsoft is $46. (Details here.) I think Microsoft will be an outperformer in the next five years. Yacktman holds 25.7 million shares worth $702 million. He increased his holdings by 20.19% in the last quarter. He invested 7.7% of his portfolio in Microsoft and owns 0.31% of the company.
Procter & Gamble (PG) offers a yield of 3.45%, which is one of the best among its peers. As of Aug. 2, the company has a market cap of $170 billion. It is trading at a P/E ratio of 16 and a forward P/E ratio of 14.29. Analysts estimate 9.14% EPS growth for the next five years. Based on the analyst estimates, PG has an O-Metrix score of 4.5, which is more or less in line with the market. A price below $60 might offer a good entry point. Yacktman holds 11.23 million shares worth $690 million. He increased his holdings by 19.45% in the last quarter. He invested 7.56% of the portfolio in Procter & Gamble and owns 0.4% of the company.
US Bancorp Del (USB): As a regional bank, US Bancorp provides various banking and financial services in the U.S. The company’s recent earnings report beat the analysts’ estimations. As of Aug. 2, the bank has a market cap of $48 billion. Trailing P/E ratio is 12 and forward P/E ratio is 9.42. Analysts estimate 15.5% EPS growth for the next five years. USB has a relatively low Beta of 1.02. Institutions own 70.11% of the company and they increased their holdings by 0.41% in the last six months. As a profitable stock with 2% yield, USB fits into Yacktman’s safe investment criteria. Yacktman holds 10.7 million shares worth $278 million. He increased his holdings by 40% in the last quarter. He invested 3.05% of the portfolio in US Bancorp and owns 0.56% of the company.
Hewlett Packard (HPQ): Since reaching its peak of $48 in late March, HPQ has been in a free-fall. The stock lost 26% in the last six months. However, as a company, Hewlett Packard is doing great. It has a low P/E ratio of 8.42 and a forward P/E ratio of 6.41. Analysts estimate an EPS growth of 8.73% in the next five years. Dividend yield is 1.4%. An O-Metrix score of 8 is one of the best in the market. Hewlett Packard is a good combination of value and growth. Yacktman holds 6.5 million shares worth $230 million. He increased his holdings by 50% in the last quarter. He invested 2.25% of the portfolio in HPQ and owns 0.32% of the company.
Research in Motion (RIMM): Similar to Hewlett Packard, RIMM has been in a free-fall state since February. The stock lost almost 60% in the last six months. Surely, the competition is getting tougher in the cell phone business. Apple (AAPL) is gaining more ground, whereas others such as Nokia (NOK) and RIMM are losing their market niches. However, as a company, RIMM is still doing well. Trailing 12-month income is $3.34 billion. With a market cap of $12.66, the stock is trading only 3.83 times its net income. There is not a debt issue, and price-to-free-cash-flow ratio is 7. In my opinion, RIMM does not have any downside potential left. There are still dark clouds over the stock, but at some point the trend will reverse. As a value investor, Yacktman initiated a new purchase of 2.95 million shares worth $73 million. He invested 0.8% of the portfolio in RIMM and owns 0.56% of the company.