Donald Yacktman, founder of Yacktman Asset Management, prides himself on being stock-picker, one that keeps his emotions at bay and uses the Internet for researching companies, purposely avoiding any contact with management to ensure an unbiased opinion.
Yacktman has his top-three stock picks as relatively defensive companies, but he recently went on the offensive, adding Oracle Corporation (NYSE:ORCL) to his portfolio. Oracle now makes up 2.9% of Yacktman’s public equity portfolio.
Oracle Corporation (NYSE:ORCL) is expected to see revenue up some 6% in both fiscal 2013 and 2014, thanks to the company’s move from hardware to software. The stock is relatively flat year-to-date and trading at only 14.5 times earnings.
Oracle Corporation (NYSE:ORCL)’s last fiscal quarter earnings showed a decline in revenue that pushed the stock’s price down 14% that week, however, it offered a great buying opportunity. The “poor” quarterly results were part of Oracle’s transition from a hardware business to a software business, a long-term positive.
Oracle is helping facilitate its move to software as a service business with several acquisitions. In 2012, it snatched up RightNow for $1.5 billion and Taelo for $1.9 billion. More recently, Oracle Corporation (NYSE:ORCL) bought Eloqua for $900 million in January. Gartner believes revenue from worldwide SaaS (software as a service) will reach $22 billion in 2015 from $14.5 billion in 2012.
One of the reasons I like Oracle Corporation (NYSE:ORCL) is its dominant position in the enterprise software market. This includes its cloud platform for allowing enterprises to flawlessly shift data and applications between the public and private cloud.
Oracle also has an ironclad balance sheet, with over $33 billion in cash and generating over $13 billion in free cash flow annually. Thanks to this cash flow, Oracle Corporation (NYSE:ORCL) has been returning cash to shareholders via buybacks. During the first nine months of fiscal 2013, Oracle bought back $8.2 billion in shares, and is paying a $0.30 quarterly dividend.
Doubling down on big oil
One of Yacktman’s other big bets is on Exxon Mobil Corporation (NYSE:XOM). Yacktman upped its position by 100%, and now the stock makes up 2.4% of Yacktman’s 13F portfolio. Exxon Mobil Corporation (NYSE:XOM) is trading at 9.5 times earnings, which is relatively inline with major peers Chevron Corporation (NYSE:CVX), Total SA (ADR) (NYSE:TOT) and Hess.
With that said, Exxon Mobil Corporation (NYSE:XOM) is the world’s largest publicly traded oil company, and is one of the most defensive names and solid dividend payers in the market. Exxon Mobil Corporation (NYSE:XOM) has an impressive balance sheet, with a AAA credit rating. The oil giant also upped its dividend in April by 10% sequentially.
Exxon Mobil Corporation (NYSE:XOM) has a diversity of operations and broad geographical presence. Its key areas include the U.S., Canada, West Africa, Australia, Russia and Iraq. However, the company isn’t content with its leading position; it still plans to spend $185 billion over the next five years. This money will go toward over 20 oil and gas projects, including plays in unconventional natural-gas fields throughout North America.
Although the story sounds great, its valuation isn’t and the company’s dividend (yielding 2.8%) could be better given the slow expected growth of the company.
Top picks
Yacktman’s top stock holdings at the end of 2Q included News Corp in first, making up 11% of the fund’s 13F, and The Procter & Gamble Company (NYSE:PG) and PepsiCo, Inc. (NYSE:PEP). P&G makes up 9.2% of the Yacktman 13F and PepsiCo, Inc. (NYSE:PEP) 8.9%.
The beauty about The Procter & Gamble Company (NYSE:PG) is its robust product portfolio and exposure to emerging markets. Billionaire BIll Ackman of Pershing Square is also a big fan of P&G. He believes there’s upwards of 60% upside for the company by June 2015.
The consumer-products company has 50 “Leadership Brands” that make up 90% of its profits. These generate $1 billion to over $10 billion in sales annually, each. Part of its turnaround plans include boosting results in developed markets, while also tapping new emerging markets. This includes focusing on its 40 most profitable businesses and 20 biggest innovations. The 20-top innovations have stronger growth potential than the rest of the product portfolio.
In recent days, The Procter & Gamble Company (NYSE:PG) reported fiscal 4Q EPS of $0.79, compared to $0.82 for the same quarter last year. Organic sales growth was up 4% year-over-year. For 4Q, product innovation proved to be a growth driver for the company. Its healthcare (i.e. Oral-B) unit saw 7% organic sales growth and 4% volume growth thanks to new brands.
Going forward, The Procter & Gamble Company (NYSE:PG) is looking to grow EPS by 5% to 7% in fiscal 2014, with organic sales growth of 4%. This growth is expected to be driven by key gains in both developed and developing markets, thanks to innovation and productivity initiatives. The Procter & Gamble Company (NYSE:PG) hopes to continue boosting its exposure to the fast-growing developing markets, where sales from these regions only accounted for 40% of sales in 2012.
Bottom line
Oracle Corporation (NYSE:ORCL) is a solid investment that’s been misunderstood thanks to its transition to software. The tech stock is trading well below major peer SAP at 14.5 times earnings, compared to SAP’s 22.5 times.
Meanwhile, I also like Yacktman’s bet on The Procter & Gamble Company (NYSE:PG). I believe the stock is a turnaround story, which is rare in the large-cap space. The stock also pay investors a near 3% dividend yield. As for Exxon Mobil Corporation (NYSE:XOM), I’m not overly excited about the company given its valuation and dividend yield — I think there’s better stocks offering higher dividend yields.
The article Billion-Dollar Fund Gets Offensive originally appeared on Fool.com is written by Marshall Hargrave.
Marshall Hargrave owns shares of Procter & Gamble. The Motley Fool recommends Procter & Gamble. The Motley Fool owns shares of Oracle. Marshall 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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