Tracking Yacktman Asset Management Portfolio - Q3 2017 Update

Summary

• Yacktman's US long equity portfolio value increased marginally from $10.28B to $10.35B this quarter.
• Yacktman Asset Management increased Infosys and added Unilever during the quarter.
• Their largest five stakes are at ~53% of the 13F portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Yacktman’s US stock portfolio on a quarterly basis. It is based on Yacktman Asset Management’s regulatory 13F Form filed on 11/03/2017. Please visit our Tracking Yacktman Asset Management series to get an idea of his investment philosophy and our previous update for the fund’s moves during Q2 2017.

This quarter, Yacktman Asset Management’s (MUTF:YACKX, MUTF:YAFFX, MUTF:YASSX) US long portfolio increased marginally from $10.28B to $10.35B. The number of holdings increased from 44 to 46. The largest holding is Twenty-First Century Fox at 15.90% of the US long portfolio. The five largest individual stock positions are Twenty-First Century Fox (FOX, FOXA), Procter & Gamble (PG), PepsiCo Inc. (PEP), Cisco Systems (CSCO), and Johnson & Johnson (JNJ), and they together account for 52.49% of the 13F portfolio. The firm currently holds around 25% cash - a far cry compared to zero cash immediately following the financial crisis. The portfolio is concentrated, with recent 13F reports showing around 45 individual positions. 25 of their stakes are significantly large (over ~0.5% of the US long portfolio each), and they are the focus of this article.

To know more about Yacktman's bottom-up value investing philosophy, check out the book "Value Investing: From Graham to Buffett and Beyond".

New Stakes

Unilever NV (UN): UN is a very small 0.63% of the portfolio stake established this quarter at prices between $54.50 and $61 and the stock is now at $57.27.

Stake Decreases

Twenty-First Century Fox: FOXA is Yacktman’s largest 13F position by far at 15.90% of the portfolio. They had a very small position in News Corporation (NWS) in 2008. The 2009-2012 time frame saw a huge stake build up, as their share count increased 32 times (2.5M shares to over 80M shares). Since the spin-off and renaming of News Corporation, both positions (News Corp. and Twenty-First Century Fox) saw selling - the News Corp. stake was eliminated in Q4 2013, and the FOXA stake was substantially reduced. Yacktman’s cost basis on FOXA is very low. Q1 2017 saw an ~11% trimming, and since then, the activity has been marginal.

Procter & Gamble: PG is a very long-term position that has been in the portfolio since Yacktman’s first 13F filing in 1999. The position size remained insignificantly small until 2007, when about 520K shares were purchased at prices between $61 and $74. The position was cut in half in 2008, but the following four years saw a 100-fold stake increase at prices between $47 and $70. The four quarters through Q3 2016 saw a 50% reduction at prices between $72 and $90. The stock currently trades at $86.58. PG is Yacktman’s second-largest position at 13.54% of the portfolio. There was marginal trimming in the past four quarters.

PepsiCo Inc.: The 8.63% (top-three) PEP stake was built up over multiple years, with the bulk of the buying happening in the 2011-13 time frame: over 22M shares were purchased during that time at prices between $60 and $86. The stock currently trades at $110. The six quarters through Q3 2016 had seen a roughly two-thirds reduction at prices between $91 and $111. There was minor trimming in the past four quarters.

Cisco Systems: CSCO is a large (top-five) 7.32% of the US long portfolio position first purchased in 2010. The bulk of the current position was purchased in 2011 and 2012 at prices between $15 and $22. The stake has been sold down since. 2015 saw a combined ~45% reduction at prices between $25.52 and $29.61. 2016 also saw a combined ~20% reduction at prices between $23 and $32. The stock currently trades at $34.47. Yacktman is harvesting gains from this position. There was a ~7% trimming in Q1 2017, and since then, the activity has been very minor.

Johnson & Johnson: JNJ is a large (top-five) 7.10% of the US long portfolio position that has been in the portfolio since their first 13F filing in Q1 1999. The bulk of the current position was purchased in 2011 in the low $60s price range. The stock has doubled and currently trades at around $140. The six quarters through Q3 2016 had seen a combined ~30% reduction at prices between $91 and $125. Yacktman is harvesting gains. There was minor trimming in the past four quarters.

Coca-Cola Company (KO): KO is a very long-term position that has been in the portfolio for over sixteen years now. During Yacktman’s first 13F filing in Q1 1999, the position consisted of just a few thousand shares. The stake was built up to almost 2.4M shares by Q4 2006. The position size dropped below 1.5M shares in Q4 2008, but since then, the stake was consistently increased - it doubled in both 2009 and 2010, and increased by ~150% each in 2012 and 2013. The huge stake build-up happened at prices between $21 and $30 and $33.50 and $43 in the 2009-10 and 2012-13 periods respectively. The stock currently trades at $45.97, and the position stands at 7.06% of the US long portfolio. The six quarters through Q3 2016 had seen a ~57% reduction at prices between $38 and $47. The past four quarters have seen a marginal further reduction.

Oracle Corporation (ORCL): The large ~7% ORCL position was first purchased in Q2 2013. Over 20M shares were acquired at prices between $30 and $35. H1 2015 saw a ~23% reduction at prices between $40 and $45. The five quarters through Q3 2016 saw another one-third reduction at prices between $34 and $42. The past three quarters have also seen a combined 25% selling at prices between $38.50 and $53. The stock currently trades at $50.18.

Microsoft Corporation (MSFT): MSFT has been in the portfolio since 2003, and it became a significantly large position in 2006, when around 2.2M shares were purchased at prices between $22 and $29.50. The bulk of the current 6.27% of the US long portfolio stake was established in 2011, when ~20M shares were added at prices between $24 and $28.50. 2014-2016 saw an overall stake reduction of ~70% at prices between $36 and $63. The stock currently trades at $84.14. H1 2017 saw another ~20% selling at prices between $62 and $72.50. Yacktman is harvesting long-term gains from this position. There was marginal trimming this quarter.

Sysco Corporation (SYY): SYY is a fairly large position at 5.70% of the US long portfolio. It was established in 2010, with the bulk purchased in 2011 and 2012 in the high $20s price range. Q3 2015 saw a ~24% reduction at prices between $36 and $41, and that was followed with a ~20% reduction the following quarter at prices between $39 and $42. Last year saw another ~55% selling at prices between $39.50 and $56.50. The stock currently trades at $56.66. Yacktman is harvesting gains. There was marginal trimming in the past three quarters.

US Bancorp (USB): The 2.55% USB position has been in the portfolio for over 15 years. Majority of the current stake was purchased in 2011 in the low $20s price range. The stock currently trades at $54.65. 2015 saw a ~50% reduction in the low $40s price range, while Q4 2016 saw another ~25% selling at prices between $42.50 and $52.50. There was a ~5% further trimming in Q1 2017, and that was followed with marginal selling in the last two quarters.

The Bank of New York Mellon (BK): The 1.89% BK stake was first purchased in 2009, with the bulk of the current position built in 2010 and 2011 in the high $20s price range. The stock is now at $51.33. The position was reduced by ~30% in Q4 2016 at prices between $39 and $49. Q1 2017 also saw another ~7% trimming, and that was followed with a marginal reduction in the last two quarters.

Exxon Mobil (XOM): XOM is a ~2% of the US long portfolio stake first purchased in 2007. The bulk of the position was acquired in 2013 in the low $90s price-range. The stock currently trades below that range at $83.18. Q4 2015 saw a ~28% reduction at prices between $74 and $87, and that was followed with a ~16% reduction in Q2 2016 at prices between $82 and $94. Q4 2016 also saw another ~20% selling at prices between $83 and $88.50. H1 2017 saw a ~10% selling. There was marginal trimming this quarter.

Anthem Inc. (ANTM) (previously Wellpoint Inc.): ANTM is a 1.88% of the US long portfolio position purchased in 2012 at prices between $55 and $74. The position has seen some selling over the years. Q1 2015 saw a ~15% reduction at prices between $123 and $158, and that was followed with a huge ~60% reduction in the following quarter at prices between $151 and $171. There have only been very minor changes since. The stock currently trades at around $212.

Wells Fargo (WFC): WFC is a small ~1% of the US long portfolio position first purchased in Q1 2013. The bulk of the current position was purchased in Q2 2013, when ~4.8M shares were acquired at prices between $36.50 and $44.50. Q2 and Q3 2014 saw significant selling, as the position was reduced to 2.8M shares at prices between $48 and $54. 2015 saw a ~25% further reduction at prices between $51 and $58. The stock currently trades at $56.35. There was marginal trimming in the past three quarters.

Stryker Corporation (SYK): SYK is a ~1% of the US long portfolio position first purchased in 2009. The majority of the current stake was established in 2012 at prices between $50 and $57. The position was reduced by ~25% in Q4 2014 at prices between $79 and $97. That was followed by a ~70% reduction in 2015 at prices between $90 and $104. Last year saw another ~50% reduction at prices between $88 and $122. H1 2017 also saw a one-third selling at prices between $118 and $145. The stock currently trades at $156. Yacktman is harvesting huge long-term gains from this position. This quarter saw marginal trimming.

Note: Yacktman has a large exposure to the healthcare industry, a group that also includes Johnson & Johnson and Anthem Inc.

Cognizant Technology (CTSH): CTSH is a small ~1% position established last quarter at prices between $57.50 and $68, and the stock is now well above that range at $74.27. This quarter saw a very minor reduction.

ConocoPhillips (COP), Colgate-Palmolive (CL), State Street Corporation (STT), Wal-Mart Stores (WMT), and C.H. Robinson Worldwide Inc. (CHRW): These are very small positions (less than ~1.5% of the portfolio each) that saw minor selling this quarter.

Stake Increases

Infosys Ltd. (INFY): The 0.85% INFY position was established last quarter at prices between $14.25 and $15.80 and increased by ~60% this quarter at prices between $14.25 and $16. The stock is currently at $14.63. For investors attempting to follow Yacktman, INFY is a good option to consider for further research.

Avon Products (AVP): The minutely small 0.43% AVP stake saw a marginal increase this quarter. Yacktman owns ~4% of Avon Products.

Kept Steady

Comcast Corporation (CMCSA): CMCSA is a 0.74% of the US long portfolio position first purchased in 2008. The bulk of the original stake was purchased in 2009 at a cost basis of around $7.50. 2014 saw a ~40% reduction at prices between $26.50 and $30.50. 2015 saw a further two-thirds reduction at prices between $26.50 and $32. The three quarters through Q2 2017 saw a combined ~50% selling at prices between $30 and $42. The stock currently trades at $35.68. Yacktman is harvesting large long-term gains from this position.

Note: The prices quoted above are adjusted for the 2-for-1 stock split in February.

Note 1: Yacktman is known to shy away from investing in banks, but has held significant stakes in three banks since the financial crisis: The Bank of New York Mellon (1.94%), US Bancorp (2.55%), and Wells Fargo (1.05%).

Note 2: Very small (less than 0.5% of the portfolio each) positions account for 2.63% of the overall portfolio. They are 3M Company (MMM), AbbVie Inc. (ABBV), Altria Group (MO), America’s Car-Mart (CRMT), The Bancorp Inc. (TBBK), Bank of America (BAC), Berkshire Hathaway (BRK.A, BRK.B), Clorox Company (CLX), Corning Inc. (GLW), Dollar General (DG), Express Scripts (ESRX), Goldman Sachs (GS), HP Inc. (HPQ), Hewlett Packard Enterprise (HPE), Intel Corporation (INTC), Philip Morris Intl. (PM), Reading International (RDI), and Viacom (VIAB).

Note 3: Yacktman controls ~6% of America’s Car-Mart.

The spreadsheet below highlights changes to Yacktman’s US stock holdings in Q3 2017:

Analyst’s Disclosure: I am/we are long BAC, INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.