Mr. Yacktman is the President and Co-Chief Investment Officer of Yacktman Asset Management Co. He is also a Co-Manager for The Yacktman Funds. Before setting up the firm in 1992, Mr. Yacktman served for ten years as the Senior Portfolio Manager of Selected Financial Services, Inc. and for nine years as the Portfolio Manager of the Selected American Shares mutual fund. He was named Portfolio Manager of The Year by Morningstar in 1991. He joined Selected Financial Services, Inc. in 1982 from Stein Roe & Farnham.
Following a disciplined investment strategy, the company buys growth companies at low prices. This strategy is based on three attributes the company needs to have:
- Good business: this factor may involve high market share in principal product and/or service lines; a high cash return on tangible assets; and relatively low capital requirements allowing a business to generate cash while growing, among others.
- Shareholder-oriented management with a specific focus on those companies that reinvest and still have excess cash, buy back stock and make synergistic acquisitions.
- Low purchase price: stock that sells for less than what an investor would pay to buy the whole company.
Yacktman believes it is important to invest more in top choices than focusing on less attractive investments. This is why his fund´s portfolio is made up of less than 25 stocks.
Here are some of his financial stocks:
U.S. Bancorp USB (NYSE:USB): U.S. Bancorp, a financial services holding company, is a purchase many analysts recommend and it seems Don Yacktman followed the recommendation. Why did he invest in USB? USB is a good example of a financial institution that has been greatly recovering from 2008. One of its main goals is to grow and it currently enjoys good health as figures show: in the third quarter of 2011 it reported earnings, year over year, increased 40% to $1.27 billion, or $0.64 per share. Its revenue was up 7% on a year over year basis in the third quarter of 2011.
Among some of the main services and products, it provides the generation of deposit products such as checking accounts, savings accounts, money market savings, and time certificates of deposit accounts. It also provides commercial loans and lease financing; residential mortgages, retail loans such as credit cards, retail leasing, home equity, and the like.
USB is recognized across the globe for its focus on growing. USB operates through a subsidiary called Elan Financial Services, which provides a wide range of processing and payment services. It is a leading credit card issuer in the US. The subsidiary bought the financial credit card debt of FIA Card, which belongs to Bank of America (NYSE:BAC). With this, USB has improved its lending ability.
Janus Capital Group (NYSE:JNS): JNS provides investment management services to individual and institutional investors. Three different subsidiaries manage its assets: Janus, INTECH and Perkins. By September 2011, Janus had total assets of about $141 billion, 86% of which was invested in equity, 13% in fixed-income, and also some money market funds.
Some issues related to the dot-com bubble collapse affected Janus's performance. If it had not been for the bear market, Janus would have reversed such collapse. Nevertheless the subsequent acquisition of INTECH and Perkins helped it build up its reputation by diversifying its product mix and by acquiring a platform that would help pursue institutional clients. JNS' assets derive from equities but there have been some revenues from moving its retail distribution from direct sales to individual investors.
Currently, Janus trades at 6.2x and 9.7x past and forward earnings and dividends yield at 3.5%.
I think that Yackman decided to invest in the company because, although consensus evaluation for Janus' EPS are that it will decline by 14.8% to $0.75 in 2011, and by 20% in 2012, it expects a change in 2013 which involves growth by 21.7%. Furthermore, assuming a multiple of 9.5x - at the far low-end of peers - and a conservative 2012 EPS of $0.57, the stock is fairly valued.
The Bancorp, Inc. (NASDAQ:TBBK): The Bancorp is the holding company for The Bancorp Bank, a virtual Internet bank that provides personal and business financial services to the greater Philadelphia-Wilmington area. At the end of the second quarter of 2011, the bank increased its deposit franchise to $2.5 billion in deposits. TBBK can generate a spread through SBA loans, commercial and home loans and invest the surplus in 5-year treasuries and short duration, risk-adverse municipal securities. Yacktman picked up the stock because the bank is highly profiting from the use of stored value deposits that allow the company to make its assets grow at a 14% pace annually. TBBK can obtain tremendous earnings from this. The stored value deposits only cost on average 11 basis points. For every point up in Fed Funds, the bank should realize 14 cents in additional EPS. The bank also receives a substantial fee for processing the transactions.
The bank operates in a low interest rate environment that has enabled it to grow its non-interest income by 38% CAGR.
In addition, these stored value cards are replacing traditional banks for individual customers while popularizing the use of credit cards which would translate into more customers signing up in the bank.
The fact that it is providing loans services in the Philadelphia area helps the bank profit since it experiences minimal loss rate. Many banks are undergoing low growth rate but TBBK seems to be a solid bank showing important growth.
It also enjoys a market cap of $246.01M and net insider shares purchased over the last six months at 110.0K, which is 0.36% of the company's 30.39M share float.
The Bank of New York Mellon (NYSE:BK): BK is an entity resulting from a 2007 merger between Mellon Financial and Bank of New York which provides financial services. BNY Mellon provides back-office services to firms, manages assets and operates private banking for institutions and individual customers. In addition, it renders asset management and private banking operations for institutional and high-net worth individuals across the globe.
Bank of New York reported that it repurchased more than 1.5% of its outstanding shares during the quarter and almost 2.5% from the beginning of the year. However, analysts consider that the bank is not in a position to increase its leverage, particularly when its equity ratio dropped below 5.9% and its Tier I leverage ratio is low at 5.1%. Anyway, the buyback is small, the stock price is attractive and the balance sheet is strong. Surely, Yacktam invested in the bank because of these three compelling factors. Furthermore, the operating expenses are under control and the bank expects them to reduce them even more in the coming quarters.
American Express Co. (NYSE:AXP): U.S. card services, international card and global commercial services, and global network and merchant services are American Express' three main businesses.
American Express is currently working on its own internal digital commerce initiatives such as Serve which consists of payment options into a single account that can be made through bank accounts, debit and credit cards. And it has also created partnerships with Foursquare, Facebook (NASDAQ:FB) and Zynga (NASDAQ:ZNGA) regarding the payment space field. Today, the financial company has launched many payment projects and a $100 million fund to invest in start-ups and companies within the e-commerce environment. This initiative involves loyalty and rewards, mobile and online payment management, security and fraud detection among other services.
Yacktman wasattracted to this stock because it always finds ways to improve and grow. The initiative in e-commerce will enable Amex to gather data about the latest advances in technology and the companies to acquire.
American Express´s market cap is $56 billion and trades at just under 12 times the expected 2011 net earnings. Net income is expected to grow by just 2 percent to $4.17 per share in 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.