Austin, TX-based Yacktman Asset Management, headed by fund managers father-and-son team Donald and Stephen Yacktman, held $12.22 billion in 13-F assets in their Q4 filing last Wednesday. The Yacktmans are opportunistic and scour the entire universe for ideas that generate the best possible return, whether it is small caps, large caps or debt instruments.
They are true value buyers and bargain hunters who do well when the market declines, as in 2000-2002 when the fund returned a cumulative 51% while the S&P tanked 38% during the same period. They hold a very concentrated portfolio of just 64 positions, with the top five positions accounting for almost 40% of their portfolio. Also, over 80% of their holdings are in large-caps, and most of the remaining 20% is in mid-cap equities.
The following are undervalued stocks that the Yacktmans are most bullish on based on their most recent Q4 13-F filing (for the December 2011 quarter):
Goldman Sachs Group Inc. (GS): GS is the world's leading investment bank. It provides investment banking, securities and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Yacktman added a new $79 million position in the company, its largest new position in Q4. GS stock has been rallying since it reported its Q4 last month, on January 18th, up about 20% since the report in which it handily beat analyst earnings estimates ($1.84 v/s $1.22). The stock currently trades at 8-9 forward P/E and 0.9 P/B compared to averages of 14.8 and 1.5 for its peers in the investment banking group.
Bank of America (BAC): BAC is a global financial services company providing banking and financial services to individuals, small- and middle-market businesses, corporations and governments primarily in the U.S., and also internationally in over 40 foreign countries. Yacktman added a new $44 million position in the company, its second largest new position in Q4. BAC recently reported its Q4, with earnings in-line and revenues slightly beating estimates. The stock has recently run-up over 50% from December lows, and trades at a discount 7 forward P/E and 0.3 P/B compared to averages of 9.6 and 0.7 for the major regional banks group, while earnings are projected to fall from $1.30 in 2011 to $1.10 in 2013.
Research in Motion Ltd. (RIMM): RIMM is a Canadian manufacturer of Blackberry handheld devices for the mobile communications market. Yacktman added $101 million in Q4 to its $57 million prior quarter position in the company. RIMM share prices have recently been in a consolidation pattern for the last three weeks after a near 50% run-up in the prior five weeks that was driven mostly by renewed take-over speculation. The company, a major loser in the mobile phone wars, as its products get edged out by both the iPhone and Android-based phones, has been rapidly losing market share, and has correspondingly seen a near 90% correction in its shares from their highs in 2008.
The company recently appointed a new CEO, Thorsten Heins, and the street has been anxiously waiting to see if he adopts any new strategies that would help unlock the value of this company. Meanwhile, the stock currently trades at 5-6 forward P/E and 0.8 P/B compared to averages of 30.4 and 3.2 for the wireless equipment group, while earnings are projected to fall going forward from $6.34 in 2011 to $2.93 in 2013.
Microsoft Corp. (MSFT): MSFT is the world's leading software company. It develops operating systems, business software and other applications for servers, PCs and intelligent devices. Yacktman added $147 million in Q4 to its $792 million prior quarter position in the company. MSFT stock, a favorite among the value crowd, is undervalued, trading at a steep discount at 10-11 forward P/E and 4.0 P/B compared to averages of 35.4 and 4.4 for its peers in the computer software group, while earnings are projected to rise at a modest 5.4% annual rate from $2.69 in 2011 to $2.99 in 2013.
The stock has basically flat-lined in a narrow range between the mid-$20s and mid-$30s for most of the last 10 years since the 2000 crash, and is finally beginning to show some life with a 25% rally in the last three months. However, it seems unlikely that it will break out of the trading range with lackluster growth projections going forward.
The following are additional major buys in Q4 that do not trade at a discount to their peers (see Table):
Procter & Gamble (PG): With more than 250 products marketed to more than five billion consumers in 130 countries, PG is a global manufacturer of beauty care products, cleaning products, diapers, tissues, healthcare, toothpaste, snacks and beverages. It operates via five business segments: fabric and home care, paper, beauty care, healthcare, and food and beverage. Yacktman added $92 million in Q4 to its $799 million prior quarter position in the company. PG trades at a premium 14-15 forward P/E compared to the 13.7 average for its peers, while earnings are projected to rise at a modest 5.5% annual rate from $3.95 in 2011 to $4.40 in 2013.
State Street Corp. (STT): STT is the world's leading provider of various financial services and products to institutional investors worldwide. Yacktman added a new $24 million position in Q4 in the company. STT trades at 9-10 forward P/E and 1.1 P/B compared to averages of 8.8 and 0.9 for its peers in the major regional banks group.
Other stocks that Yacktman is bullish on based on its Q4 filing last week (see Table) include Cisco Systems Inc. (CSCO), in which it added $32 million to its $642 million prior quarter position; News Corp. (NWSA), in which it added $74 million to its $1.49 billion prior quarter position; Pepsico Inc. (PEP), in which it added $133 million to its $1.30 billion prior quarter position; super-regional bank holding company Northern Trust Corp. (NTRS), in which it added a new $24 million position; cosmetics manufacturing and marketing company Avon Products (AVP), in which it added $176 million to a $111 million prior quarter position; and medical products company CR Bard (BCR), in which it added $255 million to a $292 million prior quarter position.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.