A Closer Look at Yacktman’s Big Buys in the Fourth Quarter
Aubrey is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Note: A previous version of this article inaccurately referenced Coca-Cola's dividend. The error has been corrected.
Yacktman Asset Management Lp is a $17 billion mutual fund management firm founded by Donald Yacktman in 1992. One of the known products of the firm is the Yacktman Focused Fund which had returned 12 percent within the past five years making it one of the top performers within its category. A good look at the moves of such huge management firms can provide investors with insights for a good mix of stocks to consider.
In the fourth quarter of 2012, the Austin-based firm initiated only 2 new positions and increased shares in 28 stocks. The five biggest buys are Stryker (NYSE: SYK), The Coca-Cola Company (NYSE: KO), Dell (NASDAQ: DELL), Avon Products (NYSE: AVP), and Pepsico (NYSE: PEP). Yacktman had sold out 3 stocks and reduced positions in 20 including Research In Motion Limited which the firm had strongly backed in the past. Here’s a closer look at the biggest buys of Yacktman in the fourth quarter.
Sources: Finviz.com and whalewisdom.com; as of February 5, 2013
The fund manager bought yet another significant amount of shares in Stryker. The 24-percent increase in the holding in the fourth quarter brought the total position to over 12.064 million shares, which represented roughly 4 percent of Yacktman’s total portfolio. The fund manager has not sold any part of its holding of Stryker within at least in the last 2 years.
The medical device maker’s stock price has been performing robustly in recent months. The company has had encouraging revenue performance in the fourth quarter. In fact, quarterly revenue grew by 5 percent, with organic growth nearly 6 percent. Its expansion in China will definitely come into play and will give the company an even better growth prospect. Also, investors favor this stock for its impressive dividend record. The dividend amount has just been raised from 21 to 26.5 cents. Stryker’s dividend growth had averaged over 40 percent since 2006.
The Coca-Cola Company
Yacktman also purchased an additional 23 percent of shares in Coca-Cola, bringing the total position to over 16.584 million shares or 3.6 percent of the firm’s total portfolio. This is by far the largest buy in Coca-Cola that the firm has had within at least the past 2 years.
The Coca-Cola Company has posted positive earnings surprises three times in 2012 and its long term growth estimate of over 8 percent is encouraging. Likewise, KO is able to maintain its high net margin. For one, the payout ratio is still at a fair level of 51.17%, which is not very different from its historical ratioof 50.65%. And the company has an excellent dividend record. If one may notice that the dividend payment have reverted back to its level 9 years ago, it is due to the split in the stock last August 2012. Prior to this, the dividend amount has been excellently going the upstream direction for the past decade or so reaching $0.51. Hence, given the landmark company’s good fundamentals and encouraging growth prospect, I believe that KO can live up to its name and credibility when it comes to paying its investors stable dividends.
Yacktman initiated a position worth over $151 million in Dell in the fourth quarter. The fund manager is noted to have sold all its former shares in Dell in the second quarter of 2011. The latest purchase is, I believe, in anticipation of a buyout that would take the company private. As of publication time, Michael Dell is reported to be nearing a $23 billion deal with Microsoft and Silver Lake Partners, a private-equity firm, to offer its shareholders $13.50 to 13.75 per share. This will give Mr. Dell the largest position in the company. If successful, it would be the biggest tech leveraged buyout since the financial meltdown. It is also a big move for Mr. Dell in his goal to reposition the company he has founded for the new era. The stock price has been performing robustly in recent months. Currently, the P/E is estimated at 9.03 with a PEG of 1.04.
Yacktman increased its stake in Avon by 10 percent in the latest quarter bringing its total shares to 18.871 million which is equivalent to 1.62 percent of the firm’s portfolio. The firm has been holding on to its shares in Avon since it initiated the position in the third quarter of 2011.
Apparently, the fund manager is crossing its fingers on Avon to finally make the take-off that had been overdue for years. The company has been having problems due to problematic leadership and mistakes it had committed in emerging markets in the past. Now Avon has to overcome a multitude of challenges. It currently experiences dwindling profit margin; the third quarter net margin of 1.24% is way below that for the same quarter in 2011 at 5.94%. In addition, revenue has been going down for the third straight quarter. Nevertheless, estimates for its EPS growth next year is placed at over 22%. Based on consensus, this double-digit growth is expected until 2015. Its strength lies on its good cash flow. Investors may be having high hopes on the company’s new leadership as Avon has just appointed David Powell as its Senior Vice President of Business Transformation and Global Supply Chain.
The fund manager added 817,910 shares of Pepsico in its portfolio in the fourth quarter. This has brought the stake to over 23 million shares worth $1.574 billion. It is noted that the firm had sold some of its shares in the company during the two preceding quarters.
The growth prospect of Pepsico is encouraging. Its EPS growth for next year is estimated at 8.62%. So far, the company has been surpassing consensus estimates at least in all the past four quarters. Its annualized dividend amount has been also consistently increasing, albeit at a slower pace, in the last 3 years. With a profit margin on an upward trend, a healthy P/E ratio of 19.32, and an excellent dividend record, there is no wonder that Yacktman continues to invest billions of dollars in Pepsico.
In the overall, Yacktman had chosen a fair mix of big buys. In the mean time, I would prefer to wait before making huge moves concerning Avon until a momentum arises.
aubrey1102 has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!