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Yacktman Fund Trims Media and Technology Empire in 1st Quarter

- By James Li

Jason Subotky and Donald Yacktman (Trades, Portfolio)'s son Stephen, current portfolio managers of the AMG Yacktman Fund (Trades, Portfolio), invest in growth companies at low prices. During first-quarter 2017, the fund managers trimmed their positions in seven media and technology companies: Viacom Inc. (VIAB), Oracle Corp. (ORCL), Twenty-First Century Fox Inc. (FOXA), Microsoft Corp. (MSFT), Cisco Systems Inc. (CSCO) and Corning Inc. (GLW).


Viacom

Subotky and Yacktman eliminated their 3.5 million-share stake in Viacom, a global media company with leading cable networks like Nickelodeon and MTV. The stock averaged $42.21 during the quarter, and the managers pared 1.85% of their portfolio with this transaction.

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Although the company has a profitability rank of 8, Viacom's operating margin and return on assets are near a 10-year low. The company's operating margin has declined 4.2% per year on average during the past five years.

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Viacom's financial strength ranks a poor 4 out of 10, suggesting a weak financial outlook. The company's cash-debt ratio and interest coverage suggest that Viacom has moderate to severe financial distress even with an Altman Z-score of 2.47. Additionally, Viacom's cash-debt ratio underperforms 94% of competitors.

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Oracle

The fund managers trimmed 11.43% of their Oracle position, selling 1.2 million shares at an average price of $41.64.

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Oracle has a profitability rank of 7, suggesting good growth potential. The company's operating margin and net margin outperform over 93% of competitors. Although the company has consistent revenue per share growth, Oracle's GuruFocus business predictability rank is just 2.5 stars as its EBITDA per share declined during the past two years.

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While the company has high profitability, Oracle's share price is near a 10-year high. Additionally, the company's price-sales (P/S) ratio is near a five-year high of 5.41 and ranks lower than 73% of competitors.

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Twenty-First Century Fox

Subotky and Yacktman sold 1.465 million shares of Twenty-First Century Fox, 6.38% of their stake. During the quarter, Twenty-First Century Fox averaged $30.56 per share.

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Although the media conglomerate has a profitability rank of 9, Fox's financial strength ranks a modest 5 out of 10. The company's interest coverage is barely above Ben Graham's required threshold of 5. Worse, Fox only has 23 cents in cash per $1 in debt and an Altman Z-score of 2.27.

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Fox is moderately overvalued based on its Peter Lynch chart and price-book (P/B) valuations. The company's P/B ratio ranks lower than 74% of competitors and its share price is near a 52-week high.

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Microsoft and Cisco Systems

Yacktman's fund managers chopped 8.20% of their Microsoft stake, selling 500,000 shares at an average price of $64.09. Subotky and Yacktman also pared 6.77% of their Cisco Systems stake, selling 900,000 shares at an average price of $32.43.

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Microsoft has three severe warning signs, including a five-year operating margin decline rate of 10.3% and a five-year gross margin decline rate of 4.8%. The Washington state application software company also has valuations, including a share price and a P/S ratio both near a 10-year high.

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Both Microsoft and Cisco have year-over-year revenue per share growth, suggesting low growth potential for 2017. While Cisco does not trade near its 10-year maximum P/S ratio, the company's share price is still near a 10-year high.

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Corning

Subotky and Yacktman axed 42.31% of their stake in Corning, selling 1.1 million shares at an average price of $26.61.

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While the science tech company has high financial strength and profitability, Corning's P/S ratio is near a two-year high and ranks lower than 79% of competitors. The company's forward price-earnings (P/E) ratio is higher than its trailing P/E ratio, suggesting that earnings are projected to decline in the next 12 months.

Disclosure: No positions.

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This article first appeared on GuruFocus.