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Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods

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GuruFocus.com
·9 min read
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- By Sydnee Gatewood

The Yacktman Focused Fund (Trades, Portfolio) disclosed its fourth-quarter portfolio earlier this week.


Part of Austin, Texas-based Yacktman Asset Management (Trades, Portfolio), the fund is managed by Stephen Yacktman and Jason Subotky. It primarily invests in large-cap U.S. companies to generate long-term capital appreciation and current income. When picking stocks, the portfolio managers look for good businesses that have shareholder-oriented management teams and are trading at low prices.

With these criteria in mind, the firm entered new positions in Charles Schwab Corp. (NYSE:SCHW) and Tyson Foods Inc. (NYSE:TSN). Other notable trades included a reduction of the Samsung Electronics Co. Ltd. (XKRX:005935) and Fox Corp. (NASDAQ:FOX) stakes as well as a boost to the KT&G Corp. (XKRX:033780) holding.

Charles Schwab

The fund invested in 855,000 shares of Charles Schwab (NYSE:SCHW), allocating 1.52% of the equity portfolio to the holding. The stock traded for an average price of $45.56 per share during the quarter.

The San Francisco-based brokerage company has a $110.4 billion market cap; its shares closed at $58.75 on Friday with a price-earnings ratio of 27.2, a price-book ratio of 4.23 and a price-sales ratio of 7.51.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 4 out of 10 aligns with this assessment since the share price and price-sales ratio are both nearing multiyear highs.

Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods
Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods

GuruFocus rated Charles Schwab's financial strength 4 out of 10. Although the company has a comfortable level of interest coverage, its assets are building up at a faster rate than revenue is growing, indicating it may be becoming less efficient.

The company's profitability fared a bit better, scoring a 6 out of 10 rating on the back of margins and returns that outperform over half of its competitors. Although the low Piotroski F-Score of 3 is indicative of poor operating conditions, Charles Schwab has posted consistent earnings and revenue growth over the past several years. As a result, it has a predictability rank of 4.5 out of five stars. According to GuruFocus, companies with this rank return an average of 10.6% annually over a 10-year period.

Of the gurus invested in Charles Schwab, Dodge & Cox has the largest stake with 5.32% of outstanding shares. Other top guru shareholders include Al Gore (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Bill Nygren (Trades, Portfolio), Ron Baron (Trades, Portfolio), First Eagle Investment (Trades, Portfolio) and the Parnassus Endeavor Fund (Trades, Portfolio).

Tyson Foods

The Focused Fund picked up 700,000 shares of Tyson Foods (NYSE:TSN), dedicating 1.51% of the equity portfolio to the position. Shares traded for an average price of $62.34 each during the quarter.

The poultry, beef and pork processor, which is headquartered in Springdale, Arkansas, has a market cap of $23.62 billion; its shares closed at $64.75 on Friday with a price-earnings ratio of 11.05, a price-book ratio of 1.52 and a price-sales ratio of 0.55.

According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rank of 7 out of 10 also leans toward undervaluation.

Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods
Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods

Tyson's financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately $887 million in new long-term debt over the past three years, it is at a manageable level as a result of adequate interest coverage. The Altman Z-Score of 3.04 also indicates the company is in good standing even though its assets are building up at a faster rate than revenue is growing.

The company's profitability scored an 8 out of 10 rating, driven by an expanding operating margin, strong returns that outperform over half of its industry peers and a moderate Piotroski F-Score of 6, which implies business conditions are stable. Tyson also has a four-star predictability rank. GuruFocus says companies with this rank return an average of 9.8% annually.

With a 1.2% stake, the T Rowe Price Equity Income Fund (Trades, Portfolio) is Tyson's largest guru shareholder. Primecap, Pioneer, Steven Cohen (Trades, Portfolio), Tom Gayner (Trades, Portfolio), NWQ Managers (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Joel Greenblatt (Trades, Portfolio), Richard Snow (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Bernard Horn (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) also own the stock.

Samsung

With an impact of -4.35% on the equity portfolio, the fund curbed its stake in Samsung Electronics (XKRX:005935) by 25.79%, selling 2.45 million shares. During the quarter, the stock traded for an average per-share price of 59,430.2 won ($53.79).

Yacktman now holds 7.05 million shares total, representing 15.99% of the equity portfolio. GuruFocus estimates the fund has gained 100.97% on the long-held investment.

Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods
Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods

The South Korean electronics company, which is known for its smartphones and flat-screen televisions, has a market cap of 589.2 trillion won; its shares closed at 77,600 won on Friday with a price-earnings ratio of 24.03, a price-book ratio of 1.96 and a price-sales ratio of 2.23.

Based on the Peter Lynch chart, the stock appears to be overvalued. The GuruFocus valuation rank of 2 out of 10 also supports this assessment since the share price and price ratios are all closing in on 10-year highs.

Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods
Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods

Samsung's financial strength and profitability were both rated 8 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the robust Altman Z-Score of 5.9 indicates the company is in good standing even though its revenue per share growth has slowed down over the past 12 months. The return on invested capital also significantly surpasses the weighted average cost of capital, indicating good value creation.

The company is also being supported by an expanding operating margin, strong returns that outperform over half of its competitors and a moderate Piotroski F-Score of 6.

The Yacktman Fund (Trades, Portfolio) is the largest guru shareholder of Samsung with 0.17% of outstanding shares. The Focused Fund holds 0.10%.

Fox

Impacting the equity portfolio by -1.16%, the Focused Fund trimmed its Fox (NASDAQ:FOX) stake by 22.47%, divesting of 1 million shares. The stock traded for an average price of $27.72 per share during the quarter.

Yacktman now holds 3.45 million shares total, accounting for 3.33% of the equity portfolio. GuruFocus data shows the fund has lost an estimated 17.55% on the investment since the first quarter of2019.

Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods
Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods

The New York-based mass media company, which is involved in the TV broadcast, news and sportscasting broadcast industries, has an $18.46 billion market cap; its shares closed at $30.39 on Friday with a price-earnings ratio of 11.93, a price-book ratio of 1.74 and a price-sales ratio of 1.56.

The Peter Lynch chart suggests the stock is undervalued.

Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods
Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods

Fox's financial strength and profitability were both rated 5 out of 10. Despite having adequate interest coverage, the Altman Z-Score of 2.32 indicates the company is under some minor pressure. The ROIC eclipses the WACC, however, indicating good value creation.

The company is also supported by strong margins and returns that outperform a majority of industry peers as well as a moderate Piotroski F-Score of 6.

Yacktman Asset Management (Trades, Portfolio) is Samsung's largest guru shareholder with 1.88% of outstanding shares. Dodge & Cox, Seth Klarman (Trades, Portfolio), the T. Rowe Price Equity Income Fund, Tweedy Browne (Trades, Portfolio), Simons' firm, Mario Gabelli (Trades, Portfolio), the MS Global Franchise Fund (Trades, Portfolio), Pioneer and Charles Brandes (Trades, Portfolio) also own the stock.

KT&G

The Focused Fund increased its KT&G (XKRX:033780) position by 282.98%, buying 665,000 shares. The transaction had an impact of 1.7% on the equity portfolio. During the quarter, shares traded for an average price of 84,584.1 won.

The fund now holds 900,000 shares total, which make up 2.3% of the equity portfolio. GuruFocus data shows Yacktman has lost an estimated 2.29% on the investment since the first quarter of 2018.

Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods
Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods

The South Korean tobacco company has a market cap of 10.14 trillion won; its shares closed at 81,700 won on Friday with a price-earnings ratio of 10.48, a price-book ratio of 1.17 and a price-sales ratio of 1.99.

According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rank of 10 out of 10 also supports this assessment.

Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods
Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods

GuruFocus rated KT&G's financial strength 9 out of 10 on the back of a comfortable level of interest coverage as well as a high Altman Z-Score of 4.54. The ROIC is also higher than the WACC, indicating good value creation. Assets are building up at a faster rate than revenue is growing however, suggesting the company is becoming less efficient.

The company's profitability scored an 8 out of 10 rating. In addition to a declining operating margin, KT&G is being weighed down by returns that underperform over half of its competitors. It also has a moderate Piotroski F-Score of 6 and a one-star predictability rank. GuruFocus data shows companies with this rank return an average of 1.1% annually.

The Yacktman Fund (Trades, Portfolio) has the largest stake in KT&G with 0.89% of its outstanding shares. Charles de Vaulx (Trades, Portfolio), the IVA International Fund (Trades, Portfolio) and Bernard Horn (Trades, Portfolio) also own the stock.

Additional trades and portfolio performance

During the quarter, the Focused Fund also added to its holdings of Ingredion Inc. (NYSE:INGR) and Hyundai Mobis Co. Ltd. (XKRX:012330) as well as reduced its positions in Continental AG (XTER:CON), Macy's Inc. (NYSE:M) and The Walt Disney Co. (NYSE:DIS).

The fund's $2.99 billion equity portfolio, which is composed of 49 stocks, is largely invested in the consumer defensive, technology and communication services sectors.

Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods
Yacktman Focused Fund Focuses on Charles Schwab, Tyson Foods

The Focused Fund returned 17.26% in 2020, slightly underperforming the S&P 500's 18.4% return.

Disclosure: No positions.

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This article first appeared on GuruFocus.