Yacktman Asset Management LP is an Austin, Texas-based hedge fund management firm founded by Donald A. Yacktman. The firm manages over $17 billion in equities and invests using the fundamental value approach. Last quarter, the firm significantly increased its position in Microsoft Corporation (NASDAQ:MSFT), The Coca-Cola Company (NYSE:KO) and C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW).
| Company | Shares Bought Last Quarter | Shares Held March 31, 2013 |
|---|---|---|
| Microsoft | 11,496,875 | 41,348,690 |
| Coca-Cola | 6,305,731 | 22,889,752 |
| C.H. Robinson Worldwide | 3,204,875 | 3,914,775 |
Source: 13F filing, Whalewisdom.com
Here’s a look at these stocks in detail.
Last quarter, Microsoft Corporation (NASDAQ:MSFT) reported adjusted revenue growth of 8% despite PC industry sales declining roughly 14%. Microsoft is decoupling from the broader PC industry and it appears like it can sustain growth despite the PC industry slowing, thanks to its enterprise and SMB business segments.
Microsoft Corporation (NASDAQ:MSFT) derives two-thirds of its revenue from enterprise and SMB (small and medium scale business) customers. These are the growing segments and have better margins than the PC business. Growth in these segments is expected to more than offset any decline in the PC business due to increased tablet penetration. Microsoft Corporation (NASDAQ:MSFT)’s PC business also seems to be near the bottom and may also see an uptick in the back half of the year when Windows 8.1 release is scheduled.
In addition to the enterprise business, cloud computing is another growth area for Microsoft. Recently an activist fund, ValueAct Holdings, disclosed about $1.9 billion stake in the company. According to ValueAct CEO, in the next 3-5 years, Microsoft will transform itself into one of the largest cloud computing companies in the world and investors will stop viewing the company’s stock price in terms of PC cycles. I believe increased investor appreciation of the company’s cloud business will be another catalyst for Microsoft’s stock.
In addition to growth in enterprise and cloud business, there are several other growth drivers like increased penetration of Windows phone and tablets, Xbox sales, etc. Microsoft Corporation (NASDAQ:MSFT) is currently trading at a forward PE of 11x. The company has a solid dividend yield of 2.80%. Given the encouraging trends in Microsoft Corporation (NASDAQ:MSFT)’s non-PC enterprise segment and cloud computing business which are driving its growth, I recommend a buy on the stock.
Coca-Cola: Ideal defensive bet
The Coca-Cola Company (NYSE:KO) delivered better than expected results last quarter and witnessed good sequential revenue growth in Europe and China. Russian and African markets remained strong, and results in North American markets are also expected to improve going forward. The Coca-Cola Company (NYSE:KO) is among the best in class defensive stocks with a dividend yield of 2.70% and a strong balance sheet. Although the company is trading at a slight premium to its peers, I believe this premium is justified given the company’s industry leading position and market share growth. I believe Coca-Cola is an ideal defensive stock to have in your portfolio.
In addition to the defensive nature of its core beverage business, the company also has good growth opportunities in its still beverage business. Currently, The Coca-Cola Company (NYSE:KO) derives less that 30% of its revenue from still beverages. Although, the company has seen a good growth in market share in this segment over the past few years, plenty of opportunity still remains. This segment can show mid to high single digit revenue growth for the next several years as Coca-Cola increases its penetration in high growth categories.
The Coca-Cola Company (NYSE:KO)’s exposure towards the fast growing emerging economies (which account for approximately half of its core sales) is also another growth driver for the company. Given favorable demographic and consumption trends in these markets, Coca-Cola is likely to outperform other consumer companies which have relatively low international exposure. In addition to these growth drivers, the company is also taking steps like rationalization of its bottling plants to cut costs. The Coca-Cola Company (NYSE:KO) is currently trading at 17.92 times forward earnings, which is reasonable given its defensive as well as growth characteristics.
C.H. Robinson: Secular challenges
C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) is a leading third party logistics (3PL or in other words truck brokerage) company in the U.S. The industry is facing increased competition from new players like XPO Logistics while the demand has remained stable over the last couple of years.
The improvement in technology has also adversely affected C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW)’s competitive advantage. In simple language, 3PL companies like C.H. Robinson connect clients who need to haul their goods to the truckers who are in need of clients. Clients are able to get truckers at the right price by using these services, and the truckers are able to fill in their empty routes and increase utilization. With high-tech services like openmile, the manual approach of C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) is getting outdated and becoming cost ineffective.
In addition to increased competition, the fact that we are at a late stage in the economic cycle doesn’t help the company either. During 2008-09, when the economy was slow, many small truckers were having difficulty in finding clients and thus were ready to pay a relatively higher fee to the 3PL companies like C.H. Robinson. However, with the economy recovering, C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW)’s broking fees has compressed a bit. The company’s PE valuations are at decade low levels. However, I will still recommend avoiding the stock given the secular challenges in the industry.
Conclusion
To sum up, Microsoft Corporation (NASDAQ:MSFT)’s business is in transition and its non PC enterprise and cloud computing segments are likely to drive growth going forward. The Coca-Cola Company (NYSE:KO) is a good defensive bet, while I would recommend avoiding C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) given the secular challenges in the industry.
The article Yacktman Asset Management’s Top Buys: 2 Potential Longs, 1 to Avoid originally appeared on Fool.com and is written by Ash Sharma.
Ash Sharma has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. The Motley Fool owns shares of Microsoft. Ash is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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