Value Investing Guru Donald Yacktman Propelled to Strong Q1 by Top Picks

#2. PepsiCo Inc. (NYSE:PEP)

 – Shares Owned by Value-Oriented Yacktman (as of December 31): 14.36 Million

 – Value of Yacktman’s Holding (as of December 31): $1.44 Billion

 – Q1 Return: 3.3%

The value-oriented fund owned 3.44 million fewer shares of PepsiCo Inc. (NYSE:PEP) at the end of the fourth quarter than at the end of the third quarter. Yacktman Asset Management’s stake of 14.36 million shares held on December 31 was valued at $1.44 billion, and represented 10.9% of the fund’s equity portfolio. As with rival Coca-Cola, shares of PepsiCo are trading near all-time highs, after advancing by nearly 7% over the past 52 weeks. That prompted analysts at Stifel Nicolaus to downgrade the global food and beverage company to ‘Hold’ from ‘Buy’ recently, suggesting that the company is fairly valued at this point in time. Moreover, Stifel Nicolaus believes that there is a shortage of growth catalysts ahead for the company. Unlike Coca-Cola, which is a pure-play beverage company, PepsiCo is much more diversified thanks to its foods and snacks business. PepsiCo generated total net revenue of $63.06 billion in 2015, down from $66.68 billion in 2014. Similarly, net income decreased to $5.50 billion from $6.56 billion reported for 2014. PepsiCo’s shares currently change hands at 20.4-times expected earnings, slightly below the forward P/E multiple of 22.8 for the soft drinks industry. PepsiCo gained some popularity within the hedge fund industry during the December quarter, as the count of hedge funds bullish on the company climbed to 58 from 57 quarter-over-quarter. Boykin Curry’s Eagle Capital Management had 8.39 million shares of PepsiCo Inc. (NYSE:PEP) in its equity portfolio at the end of last year.

#1. Procter & Gamble Co (NYSE:PG)

 – Shares Owned by Value-Oriented Yacktman (as of December 31): 21.86 Million

 – Value of Yacktman’s Holding (as of December 31): $1.74 Billion

 – Q1 Return: 4.6%

Procter & Gamble Co (NYSE:PG) is yet another classic value stock owned by Mr. Yacktman. Yacktman Asset Management reduced its stake in the popular company by 5.99 million shares during the October-to-December period, ending 2015 with 21.86 million shares valued at $1.74 billion. Procter & Gamble was the largest equity holding in the hedge fund’s portfolio at the end of 2015, accounting for 13.1% of the overall value of that portfolio. The shares of the owner of Tide and Ariel detergents, Fusion and Gillette blades and razors, and Pampers diapers are trading near their 52-week highs as well, after having gained 3% year-to-date. Procter & Gamble is a member of the exclusive list of Dividend Kings, as the company has increased its annual dividend payments for 60 consecutive years. The company currently distributes a quarterly dividend of $0.6695 per share, which equates to an annual dividend yield of 3.27%. Procter & Gamble’s Board recently increased its quarterly payment from $0.6629 per share, as a result of cash savings associated with the streamlining process of its products portfolio. The company’s net sales for the six months that ended December 31 decreased by 10% year-over-year to $33.44 billion due to an unfavorable mix of lower unit volume and foreign currency headwinds. In the meantime, the stock is priced at 20.3-times expected earnings, significantly below the forward P/E ratio of 27.5 for the personal products sector. The number of money managers in our database with stakes in PG declined to 52 from 58 during the October-to-December quarter. Warren Buffett of Berkshire Hathaway, another legendary value investor, owned 52.79 million shares of Procter & Gamble Co (NYSE:PG) at the end of December.

Disclosure: None