Investing Legend Donald Yacktman Trims Stake in Major Holdings Going Into Q2

Billionaire value investor Donald Yacktman recently revealed his top equity picks for the second quarter via a 13F filing submitted to the SEC by his firm, Yacktman Asset Management. According to the filing, the firm’s U.S public equity portfolio was worth almost $12.85 billion at the end of March, with 40% of its value consisting of stocks from the consumer staples sector. An interesting detail that emerged from the filing was that the fund didn’t initiate a stake in even a single stock during the first quarter. However, it did increase its position in ten stocks, reduce its holding in 21 stocks, and sell out of one holding during the period.  Since the fund’s equity portfolio was top-heavy, with 45% of the portfolio’s value being held in its top-5 holdings, we are going to study those equity picks and their performance in this article.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 Cisco Systems, Inc. (NASDAQ:CSCO)

 – Shares held by Yacktman Asset Management (as of March 31): 29.33 million

 – Value of Holding (as of March 31): $835.03 million

Let’s begin with Cisco Systems, Inc. (NASDAQ:CSCO), in which Yacktman Asset Management lowered its holding by 6% during the first quarter. Shares of the networking and communications giant started 2016 on a terrible note, but recouped most of those losses in February after the company came out with its fourth quarter financial numbers. The stock has mostly been trading in the $25-to-$30 range for the past 18 months, which can partially be attributed to Cisco Systems, Inc. (NASDAQ:CSCO)’s inability to grow its revenue at a consistent pace like it did between 2009 and 2013. In April, the company hiked its quarterly dividend payment by 24% to $0.26 per share, lifting its annual dividend yield to an impressive 3.90%. Most analysts who track the stock are bullish on it, citing its dividend yield, the low multiples at which it trades at, and the early strides Cisco has made in the Internet of Things (IoT) space. Sandy Nairn‘s Edinburgh Partners also reduced its stake in the company during the first quarter, by 4% to nearly 2.85 million shares.

#4 The Coca-Cola Co (NYSE:KO)

 – Shares held by Yacktman Asset Management (as of March 31): 18.3 million

 – Value of Holding (as of March 31): $848.62 million

The Coca-Cola Co (NYSE:KO) has been a part of Yacktman Asset Management’s equity portfolio for many years. However, since the final quarter of 2014, the fund has gradually been selling off its shares of the beverage giant. That trend continued during the first three months of 2016, as the fund cut its holding by 9%. On April 20, Coca-Cola reported its first quarter earnings, following which its stock plummeted. However, shares have rallied this month, pushing The Coca-Cola Co (NYSE:KO)’s stock to gains of 5% year-to-date. Because the stock is currently trading at a much higher price-to-earnings multiple than its historical average, several analysts feel that it has much more downside risk at current levels than upside potential. Jacob Rothschild‘s RIT Capital Partners initiated a stake in The Coca-Cola Co during the first quarter, purchasing 412,000 shares of the company.

We’ll take a gander at Mr. Yacktman’s top-3 holdings as of March 31 on page two.

#3 Twenty-First Century Fox Inc (NASDAQ:FOXA)

 – Shares held by Yacktman Asset Management (as of March 31): 40.35 million

 – Value of Holding (as of March 31): $1.13 billion

Twenty-First Century Fox Inc (NASDAQ:FOXA) is the only company among Yacktman Asset Management’s 17 largest equity holdings in which the fund increased its stake during the first quarter, by 4%. While shares of Twenty-First Century Fox Inc (NASDAQ:FOXA) have appreciated by 9% so far this year, they are still trading down by nearly 25% from the highs they reached in late-2014. On May 4, the media and entertainment behemoth reported its first quarter financial numbers, declaring EPS of $0.47 on revenue of $7.23 billion, largely in-line with analysts’ projections of EPS of $0.47 on revenue of $7.19 billion. While revenue from Cable Network Programming was up by 9.8% year-over-year during the quarter, the company’s film business saw a 2.8% year-over-year decline in revenue. However, despite the decline in revenue, the first quarter was the second-best one ever for the company’s film business in terms of profit, which came in at $470 million. Following the earnings release, analysts at Stifel Nicolaus reiterated their ‘Buy’ rating on the stock, while upping their price target on it to $32 from $29. Hedge funds that reduced their stake in the company during the first quarter included David Harding‘s Winton Capital Management, which brought its holding down by 12% to around 2.00 million shares.

#2 PepsiCo, Inc. (NYSE:PEP)

 – Shares held by Yacktman Asset Management (as of March 31): 13.40 million

 – Value of Holding (as of March 31): $1.37 billion

Moving on, Yacktman Asset Management lowered its stake in PepsiCo, Inc. (NYSE:PEP) by 7% during the first quarter. PepsiCo, Inc. (NYSE:PEP)’s stock suffered a minor blip after the company announced its first quarter earnings results recently, but has been rallying ever since. It hit its lifetime high of $106.93 in the latest trading session and currently boasts year-to-date gains of 5.36%. For its first quarter, the company managed to beat analysts’ projections of $0.81 in EPS on $11.85 billion in revenue, topping those estimates by $0.08 and $50 million respectively. On May 3, PepsiCo hiked its quarterly dividend by 7.1% to $0.7525 per share, which currently translates into a respectable annual dividend yield of 2.82%. Billionaire Ken Fisher‘s Fisher Asset Management inched up its stake in the company by 1% to 5.36 million shares during the first quarter.

#1 Procter & Gamble Co (NYSE:PG)

 – Shares held by Yacktman Asset Management (as of March 31): 19.44 million

 – Value of Holding (as of March 31): $1.6 billion

Despite Yacktman Asset Management reducing its stake in Procter & Gamble Co (NYSE:PG) by 12% during the first quarter, the company continued to remain the fund’s top stock pick as of March 31, a position that it has held since the second half of 2015. The stock of Procter & Gamble Co (NYSE:PG) was beaten down aggressively during the first nine months of 2015, but it has steadily rise since then and is currently trading up by 3% in 2016. Despite this rally, most analysts don’t have a bullish view on the stock, largely because of the continuous decline seen in the company’s revenue of late. 12 of the 25 leading analysts on the Street who cover the stock currently have a ‘Hold’ rating on it. On May 2, analysts at B. Riley reiterated their ‘Neutral’ rating and $74 price target on it, which represents potential downside risk of over 10%. Clifford Fox’s Columbus Circle Investors initiated a stake in Procter & Gamble during the first quarter, purchasing 1.62 million shares of the company.

Disclosure: None