Yacktman Asset Management’s Top Buys

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Yacktman Asset Management is an Austin, TX based asset management firm managing ~$16 billion in equities. The firm recently filed its 13F form with SEC and the following is a list of its top buys from the last quarter.   

<table> <tbody> <tr> <td> <p>Company Name</p> </td> <td> <p>Shares Bought Last Quarter</p> </td> </tr> <tr> <td> <p><strong>Stryker </strong><span class="ticker" data-id="205624">(NYSE: <a href="http://caps.fool.com/Ticker/SYK.aspx">SYK</a>)</span></p> </td> <td> <p>4,132,301</p> </td> </tr> <tr> <td> <p><strong>Coca-Cola <br /></strong></p> </td> <td> <p>6,707,760</p> </td> </tr> <tr> <td> <p><strong>Research In Motion </strong><span class="ticker" data-id="205221">(NASDAQ: <a href="http://caps.fool.com/Ticker/BBRY.aspx">BBRY</a>)</span></p> </td> <td> <p>12,233,010</p> </td> </tr> <tr> <td> <p><strong>Cisco Systems</strong> <span class="ticker" data-id="203219">(NASDAQ: <a href="http://caps.fool.com/Ticker/CSCO.aspx">CSCO</a>)</span></p> </td> <td> <p>6,493,156</p> </td> </tr> </tbody> </table>

I have already covered Coca-Cola in a previous article. In this article, I will be focusing on the other three companies in the above list. Moving into 2013 I perceive that Cisco and Stryker have a better upside potential to have a gain in the market share and also revenue, while there seems to be no chance that RIM’s strategies could make an impact on the market and also on its own financials. Here’s a look at these stocks in detail.

Stryker Corporation

Stryker Corporation (a medical technology company) is currently trading at $52.61, down by ~3% after the release of its 3Q12 earnings. I don’t see this downside a major cause of concern in future as the slight earnings losses can be attributed to the macroeconomic conditions in Europe, because the company has posted good revenue growth in other regions.

Going forward, I don’t find any reasons to have any doubts about the company’s performance as its long term growth factors lie in its acquisition strategies and new launches which are already gaining traction in the market.

The Accolade II hip stem is an innovative technology in which an uncemented component is used for proper joint restoration. It has become the company’s top selling product in just four months only and it is the fastest growing product in its segment in the US. Also, the company has received clearance from the FDA to reprocess the LigaSure device which provides the hospitals with a cost effective and quality product and Trevo Pro -a clot removal technology which has proven its highest rate of revascularization in a randomized embolectomy stroke device trial. It has to be noted that the company is the only maker of the LigaSure device which has been cleared by the FDA apart from the JNJ in the market, and given the fact that the market is in its early phase, the product has a lot of scope to succeed.

Coming on to the acquisition part, it has acquired Surpass Medical to strengthen its product portfolio under the Neurovascular division. The company is focusing on complete stroke care by developing a NeuroEndoGraft family of next-generation flow diversion stent technology.

Additionally, its Memometal acquisition (2011) to launch its ‘foot and ankle division’ is growing at an impressive rate of 17% with annual revenues of $70 billion, only slightly behind the market leader Wright Medical. The division is expected to surpass Wright Medical which generates ~110 million in annual sales.

Summing up, I think Stryker provides a good buy opportunity as it is backed by a strong diversified portfolio of leading brands and future revenue opportunities.

Research In Motion Limited

RIM which once was a leading handset provider, but its Blackberry brand has lost its charm. RIM shares are currently trading at $8.24 and are down ~90% since 2008. The company has steadily lost its market share to iOS and Android operating systems.

With the fast growing smartphone market and constantly changing consumer preferences, I don’t see a chance for RIM to gain anything spectacular with its BlackBerry 10 devices.  After two launch delays, it is now set to have a new launch in the first quarter of 2013 but still there is no news about the technology of new operating system that the company is relying so heavily to cash-in. There are no efforts seen from the company’ side for any marketing campaigns and there has been no advertising done as such to catch the consumers’ attention.

Following the launch of iPhone 5 and Galaxy Note 2, with both the products providing their own innovative and user friendly benefits, RIM will find it hard to compete with and beat the existing market leaders.

Looking at its market expansion strategies, it is targeting to enter into less competitive nations such as Venezuela, South Africa, Indonesia, the Philippines, and other parts of Asia-Pacific. But, even this strategy doesn’t sound effective as it has already failed in the pricing strategy it followed to sell the devices at lower margins which also reflected in its quarter losses of $235 million as against the profit of $329 million a year earlier. Additionally, RIM’s tablet Playbook saw its shipments declining by more than 50% from 260,000 in 1Q13.

Summing it up, RIM is losing crucial market share to its peers and thereby reporting year over year financial losses. Also there are no new innovations lined up for the company ahead, so I don’t find a reason to see an upside in the stock prices. Hence, I rate the stock as sell.

Cisco Systems

Cisco, a bellwether company in the networking and communications industry is a consistent player with a revenue growth of 9.7% Y/Y. Though its share prices are down by ~7% year to date, I believe the company has a good upside potential with new market launches and is poised for long term growth.

As of now, it holds the largest market share of more than 80% in datacenter switching and plus 70% in enterprise switching. It recently launched the Unified Access Solution which blends the capabilities of switching, enterprise wireless, and security appliances and gives IT department the ability to simplify the operations. The product has gained in consumer preferences and we can expect more growth contributing to its earnings.

On the other hand, Cisco is expanding its portfolio to allow service partners to launch Cisco-branded services. It has increased its hosted collaboration solution (HCS) partners from 18 to 34 in the last one year. Its cloud based technology gives it an upper hand over its peers as it provides cloud based technology and video on the same platform. It is now integrating its TelePresence/video conferencing into HCS, and leverage necessary investment across the entire customer base

Taking into consideration the company’s financials, it has a higher dividend yield of 3.2%. Also, it has increased its dividend from 6 cents a share to 14 cents a share showing an increase of ~10% yearly.

Summing up, Cisco has a backlog of $5 billion which is an increase of 11% year-over-year and a P/E of 11.5x as against the industry’s 16.43x.

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