What’s This Mega Investor Buying?

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Donald Yacktman's Yacktman Asset Management is one of the top-tier hedge funds we track at Insider Monkey, and because it’s worth tracking the best of the smart money’s best—discover the secrets here—we’re going to take a look at its favorite equity investments for this quarter. With a 13F portfolio in excess of $16 billion, it’s worth paying attention.

Top dog

Yacktman's top stock pick is News Corp. (NASDAQ: NWSA), and his position grew in the first quarter to approximately 75.8 million class A shares, worth $2.3 billion. In the previous filing, the fund’s position was worth $2.0 billion. News Corp posted  earnings of $1.22 per share for the third quarter of its fiscal 2013, up from $0.38 per share a year ago.

At the same time, News Corp is a popular stock among hedge funds, with more than 60 being invested in it at the end of last year. News Corp is planning to divide itself into two companies on June 28, both of which will be publicly traded; the entertainment/cable spin-off will be named 21st Century Fox.

Up more than 30% this year, investors are clearly bullish on the opportunity to get shares of a post-split News Corp that can focus on its newspaper and publishing businesses, while 21st Century Fox will likely offer a higher-momentum play.

Not too pricey

In Procter & Gamble (NYSE: PG), Yacktman reported a $2.0 billion stake, up from $1.9 billion up from the end of last year. The personal-products giant is considering a split into four separate sectors—each focusing on a different division of its business with its own president—though exact details are unknown.

The company expects EPS of between $3.97 and $4.07 for its current fiscal year; versus a core EPS of $3.85 in the previous year. It also plans to repurchase $5 billion to $6 billion worth of shares by the end of this year.

The reappointment of A.G. Lafley to Procter & Gamble’s CEO post to take over for is an intriguing move, though like the potential split, it’s too early to tell what the result will be. It’s clear that at 17.7 times forward earnings, Yacktman is betting on better value stimulation moving forward, and the price isn’t overly expensive at the moment. We’ll continue to watch this situation.

Go for value

PepsiCo (NYSE: PEP) is the next on the list, with a value of $1.8 billion versus $1.6 billion for the end of 2012. Up 21% year-to-date, PepsiCo recently announced its 41st consecutive dividend increase to $2.27 per share, from $2.15, and it said that it forecasts a 7% core constant currency EPS increase for FY 2013.

A bottle redesign and a revamped marketing program are a couple of key points that bulls expect to drive revenue moving forward, and a strategic alliance with China’s Tingyi will only help Pepsi’s battle in the Far East. Though many investors would likely go with Coca-Cola over Pepsi due to the former’s sheer size, Pepsi’s actually a better value at the moment, trading at 1.9 times sales and 16.9 times forward earnings.

Coca-Cola, meanwhile, sports sales and forward EPS metrics that are 47% more expensive than Pepsi, on average. It’s understandable why an investor like Yacktman would be bullish on the value potential.

The best of the rest

Yacktman Asset Management also disclosed a $1.2 billion stake in Microsoft at 41.3 million shares, up from 29.8 million shares worth some $797.9 million posted in the previous filing. Still in hedge funds’ top 10 picks on an aggregate basis, investors in Microsoft are finding themselves in an interesting predicament.

On one hand, shares are up more than 30% year-to-date; but the PC market’s prospects are looking increasingly dim over the long run. For the first three months of 2013, Microsoft posted a 20% increase in diluted EPS (to $0.72 per share) and announced a dividend of $0.23 per share.

Another tech pick, Cisco Systems (NASDAQ: CSCO), represented a $1.1 billion position for the hedge fund at the end of the first quarter. The amount of shares remained almost unchanged the previous holding representing 52.4 million shares, worth $1.0 billion.

In its fiscal third quarter of 2013, Cisco’s net sales grew by 5.4% to $12.2 billion year-over-year, while earnings growth of 14.5% was above Wall Street’s long-range annual estimates (8.3%). Cisco bought back about 41 million shares during the third quarter of FY 2013 worth $860 million. Cisco plans to buyback some $4.3 billion worth of shares under its current repurchase program, so we’ll continue to watch Yacktman’s investment in the tech giant.

Final thoughts

Like most of his hedge fund peers, Donald Yacktman holds a variety of stocks in his equity portfolio, as evident by looking at his favorite five picks. Giants Microsoft and Cisco round out the list, and give Yacktman exposure to value in the tech sector, while PepsiCo is slightly more attractively priced than rival Coca-Cola. Procter & Gamble’s potential for restructuring is worth watching, and News Corp's upcoming spinoff of 21st Century Fox gives investors two intriguing plays in media for the remainder of 2013.

PepsiCo has quenched consumers’ thirst for more than a century. But recently, the company has left shareholders craving more. With increased competition and loss of market share, many investors wonder if this global snack food and beverage giant is simply fizzling out. Are more bland results ahead for PepsiCo? The Motley Fool's premium report on the company guides you through everything you need to know about PepsiCo, including the key opportunities and threats facing the company's future. Simply click here now to claim your copy today.


This article is written by Alex Oleinic and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. Meena has a long position in MSFT. The Motley Fool recommends Cisco Systems, PepsiCo, and Procter & Gamble. The Motley Fool owns shares of Microsoft and 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!

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