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Yacktman Asset Management's Top 1st-Quarter Buys

Yacktman Asset Management (Trades, Portfolio) recently disclosed its portfolio updates for the first quarter of 2020, which ended on March 31.


Headquartered in Austin, Texas, Yacktman Asset Management (Trades, Portfolio) pursues long-term capital appreciation using a growth and value-based strategy. Specifically, the firm looks to purchase the stocks of business that have the following three characteristics: good business (high market share, high cash return on tangible assets, unique franchise characteristics, etc.), shareholder-oriented management (allocates capital wisely, does not overcompensate executives, etc.) and low purchase price. Stephen Yacktman, who joined the firm in 1993, is the chief investment officer, partner and portfolio manager of the firm.

Based on the above investing criteria, the firm's biggest new buys of the quarter were Huntsman Corp. (NYSE:HUN), Ralph Lauren Corp. (NYSE:RL), First Hawaiian Inc. (NASDAQ:FHB) and Qurate Retail Inc. (NASDAQ:QRTEA).

Huntsman

Yacktman Asset Management (Trades, Portfolio)'s biggest new buy for the quarter was for 6,704,701 shares of Huntsman. The trade had a 1.60% impact on the equity portfolio. Shares traded at an average price of $19.65 during the quarter.

Texas-based Huntsman is a manufacturer and marketer of chemical products. Its products include polyurethanes and adhesives for companies in several industries, including the automotive and pharmaceutical sectors.

On May 5, shares of Huntsman traded around $15.64 apiece for a market cap of $3.47 billion and a price-earnings ratio of 6.39. The Peter Lynch chart suggests that the stock could be undervalued.

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GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rating of 7 out of 10 and a business predictability rating of one out of five stars.

The cash-debt ratio of 0.19 is lower than 78.24% of competitors, while the Altman Z-Score of 1.89 indicates that the company could be in danger of bankruptcy. However, the current ratio of 1.87 and interest coverage of 4.59 times suggest that the company can meet its short-term debt obligations.

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The operating margin of 6.72% is slightly below the industry median of 7.15%. As per the chart below, the return on invested capital remains higher than the weighted average cost of capital, indicating overall profitability.

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Ralph Lauren

The firm also established a new position of 748,053 shares in Ralph Lauren, impacting the equity portfolio by 0.83%. During the quarter, shares traded for an average price of $105.74.

Ralph Lauren is a New-York based fashion company that focuses on the mid-price to luxury markets. It is best known for its products in apparel, fragrances, home and accessories.

On May 5, shares of Ralph Lauren traded around $73.10 apiece for a market cap of $5.38 billion and a price-earnings ratio of 8.34. According to the Peter Lynch chart, the stock is trading below its intrinsic value.

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GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rating of 7 out of 10 and a business predictability rating of one out of five stars.

The cash-debt ratio of 0.68 and current ratio of 1.94 indicate a liquidity position that is stronger than 60.60% of competitors. The Altman Z-Score of 3.35 suggests that the company is safe from bankruptcy for at least the next two years.

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With an operating margin of 11.98%, the company is operating more efficiently than 82.99% of competitors, which has contributed to growth in revenue and net income in recent years.

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First Hawaiian

The firm invested in 2,837,674 shares of First Hawaiian, which had a 0.78% impact on the equity portfolio. Shares traded for an average price of $25.45 during the quarter.

First Hawaiian is a bank holding company based in Honolulu, Hawaii. It operates through subsidiary companies, primarily First Hawaiian Bank, which was founded in 1858 and serves as Hawaii's oldest and largest financial institution.

On May 5, shares of First Hawaiian traded around $16.73 for a market cap of $2.19 billion and a price-earnings ratio of 8.78. The Peter Lynch chart suggests that the stock could be undervalued.

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GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rating of 3 out of 10.

The cash-debt ratio of 1.76 is lower than 57.47% of competitors, though part of the reason for the low score is the insufficient financial data available from the company. Revenue per share of $5.09 is only slightly higher than debt per share of $4.60 for the trailing 12-month period.

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Revenue and net income have been fairly stable over the past several years, with a three-year revenue growth rate of 3% and a three-year earnings per share without non-recurring items growth rate of 8.9%.

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Qurate Retail

The firm also established a new holding of 5,834,426 shares in Qurate Retail after selling out of its previous investment in the company in the second quarter of 2015. The trade had a 0.59% impact on the equity portfolio. During the quarter, shares traded for an average price of $7.43.

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Formerly known as Liberty Interactive, Qurate Retail Group is a retail media conglomerate based in Colorado. The company combines retail, media and social applications to curate shopping experiences through various communication networks. Its brands include QVC, Zulily and Cornerstone.

On May 5, shares of Qurate Retail traded around $8.24 for a market cap of $3.45 billion. The company posted a net loss for full-year 2019, but according to earnings from previous years, the Peter Lynch chart shows that the stock might be undervalued.

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GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rating of 7 out of 10 and a business predictability rating of one out of five stars.

The cash-debt ratio of 0.09, debt-to-Ebitda ratio of 20.7 and Altman Z-Score of 1.33 indicate that the company is in the danger zone for potential bankruptcy over the next two years. However, the current ratio of 1.14 suggests that the company can meet its short-term debt obligations.

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The operating margin of 10.04% is higher than 81.99% of competitors, though the net margin of -3.39% is the lowest in the company's history. Return on equity has also plummeted to the negatives in recent quarters.

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Portfolio overview

Including the above stocks, the firm established new positions in 11 companies during the quarter. The equity portfolio consists of holdings in 57 stocks valued at $6.03 billion. The turnover rate for the quarter was 16%.

The firm's top holdings were PepsiCo Inc. (PEP) with 6.73%, Johnson & Johnson (JNJ) with 6.35% and Microsoft Corp. (MSFT) with 6.14%. In terms of sector weighting, the firm was most invested in communication services, consumer defensive and technology.

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Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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This article first appeared on GuruFocus.