In this article I analyze what top portfolio manager Don Yacktman, founder of Yacktman funds, bought in the last quarter. I consider essential to analyze what Yacktman purchased because he is a prominent value investor that has a remarkable track record of beating the general indexes year after year. I analyzed his holdings via whalewisdom.com.
News Corporation (NWSA)
In the recent earnings report, NWSA reported solid numbers if I exclude charges that were not related to the company´s core businesses. News Corp reported Q4 earnings of $0.32 per share, excluding non-recurring items, in-line with the Capital IQ consensus estimate consensus of $0.32 while revenues fell 6.6% year/year to $8.37 billion vs $8.74 billion consensus. I like the reported growth from the cable network segment. The company reported 15% growth at the Cable Network Programming segment which was more than offset by declines at the company's remaining segments.
NWSA is a stock I hold in my portfolio with strong unrealized profits. I took the initial idea from a report I read in Warren Trades, a good investment newsletter.
NWSA earnings declines were exacerbated by a $2.395 billion impairment and restructuring charge largely related to the Australian publishing operations. The charge was an attempt to right-size the Aussie operations given persistent headwinds, and would appear to position the group for a more stable FY13. The market liked the fact that the company provided FY13 guidance of "high-single to low-teen" operating income growth.
I think shares could appreciate driven by strong benefits from the split off of the publishing division and the commitment from management to start another $5 billion share repurchase plan.
Yacktman also invested in Viacom (VIAB) which is another media stock I like. VIAB is estimated to spend $3 billion on new content this year, with new upcoming shows such as Teenage Mutant Ninja Turtles in September 2012 on Nickelodeon. VIAB is also experiencing success in current programming sessions. For example, MTV UK's Geordie Shore is enjoying its highest rated season and remains the highest rated series in the network's history.
Recently I read an interesting report from Wunderlich Securities. In the research, Wunderlich believes that Viacom is a solid long term value. The firm's analyst suggests that VIAB's price now discounts negative 2% annual MTV advertising growth through 2015. The firm notes that affiliate growth is supported by Viacom providing near 20% of all viewing on ad-supported cable with only a high single-digit affiliate fee share.
Procter & Gamble (PG)
I do not recommend to buy PG shares. In late June 2012, Procter & Gamble lowered its sales and earnings outlook for the final quarter of fiscal 2012 ending June 2012. In the final quarter of fiscal 2012, P&G expects revenues to drop in the range of 1% to 2% versus prior expectations of growth in the range of 1% to 2%. Organically, sales are expected to be up 2% to 3% versus prior guidance of sales growth of 4% to 5%. Foreign exchange is estimated to pull down revenue growth by 4% versus 3% expected previously. Adjusted earnings are expected in the range of $0.75 $0.79 per share versus $0.79 $0.85 earlier.
I do not like the stock considering that the recent announcements marked the second cut in the company´s guidance in the last two months. The company had already reduced its fiscal 2012 top and bottom line outlook at its third quarter conference call due to Venezuela price regulations, rising input costs and economic uncertainty in Western Europe and U.S. In addition, the company provided a disappointing outlook for fiscal 2013.
Mark Adams, from Warren-Trades.com, recommends investors to stay on the sidelines.
I like PEP considering the company´s level of innovation and the fact that shares are undervalued. Product innovation plays a huge role in the company´s success. The company regularly innovates with new flavors of existing products. PEP also maintains a robust pipeline of new products. The company´s new product effort in diet carbonated beverages, non-carbonated beverages, and healthier snacks are bearing fruitful results. For example, the company´s low calorie cola, Pepsi Next, which contains 60% less sugar, is off to a good start. I think Pepsi Next is a superb concept. The company also utilizes new packaging to shift consumers to more profitable purchases. The company's 24-ounce can for regular and diet Dew is generating good customer response.
I also find attractive the company´s exposure to emerging markets. Unlike the developed world, soft drink consumption in emerging economies is still low - the market is unsaturated, especially so when looked at from per capita consumption point of view. Over the last few years, both PepsiCo and Coca-Cola have stepped up efforts to increase consumption in these economies - especially in countries like China, India and Brazil. These countries have a large young population and rising disposable income levels which means that the propensity to spend on lifestyle choices is high. This is true not only of the soft drink and snacks market but also for the fruit juices and bottled water markets.
Shares are not expensive. PepsiCo´s current trailing P/E multiple is 16.5x , representing a discount of 20.0% to the industry average of 20.5x. Over the last five years, PepsiCo shares have traded in the range of 13.0x to 23.4x trailing P/E earnings.
Microsoft represents a compelling opportunity considering its pipeline of new products, recent strong results and attractive valuation. MSFT delivered better than expected 4Q12 results, with revenue and EPS coming in ahead of consensus. The company saw strong demand in its server and tools business and its MSFT business division. Solid revenue growth coupled with continued cost discipline drove double digit operating income growth of 12.2%. I believe that the upcoming release of Windows 8, the next version of Office and the Surface tablet could provide some upside in a declining PC environment.
In the recent earnings report, management was confident when it mentioned the company´s new product pipeline:
"Over the coming year, we'll release the next versions of Windows, Office, Windows Server, Windows Phone, and many other products and services that will drive our business forward and provide unprecedented opportunity to our customers and partners."
Yacktman also invested in Cisco (CSCO). I think Cisco is improving its execution while also streamlining operating expenses. Cisco's multiple has compressed for the past 10-years to its current P/E of just 8x. I think near term results may point to stabilization of its businesses and shares could appreciate considering a new dividend increase.
I think that Cisco is an attractive investment opportunity. The company continues to gain share and is operating at high efficiency. As the macro turns, this should translate to attractive top- and bottom-line acceleration. Meantime, valuation remains compelling on a relative and absolute basis. I like the fact that Cisco repurchased 108 million shares of common stock under the stock repurchase program at an average price of $16.62 per share for an aggregate purchase price of $1.8 billion. The remaining authorized amount for stock repurchases under this program is around $5.9 billion with no termination date. This could provide a support for the stock if the market conditions deteriorate.
Yacktman built a concentrated position in Sysco, a stock I recommend. SYY is a major player in the food-away-from-home industry and supplies just about any place one could get a meal that isn't a private residence. Sysco supplies about 400,000 customers, has a cap of over $17 billion and a P/E of 14 making it reasonably priced. I like to invest in leading companies that have strong advantages over its peers.
Sysco is the largest food-service distributor in North America, with 17% share of the market. It's followed by U.S. Foodservice with 9% share, and Performance Food Group with 5%. Because of its continued emphasis on stringent cost management, Sysco has realized returns that are about 3 times the level of its peers. I recommend SYY for a conservative portfolio.
Disclosure: I am long NWSA.