Yacktman Fund Buys Warner Bros. Discovery And Embecta, Sells Macy's

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Summary

  • Along with new positions in Warner Bros. Discovery and Embecta, the fund swapped its Class C shares of Alphabet GOOGL for Class A.
  • The fund also reduced its Sysco SYY stake and sold out of Macy’s M .

The Yacktman Fund (Trades, Portfolio), part of AMG Yacktman Asset Management (Trades, Portfolio), disclosed its second-quarter equity portfolio earlier this week.

Managed by Stephen Yacktman and Jason Subotky, the Austin, Texas-based fund seeks to achieve long-term capital appreciation and current income by combining elements of both growth and value investing strategies. When picking stocks, the portfolio managers focus on good businesses with shareholder-oriented management teams that are trading at a discount.

Keeping these considerations in mind, the NPORT-P filing shows the fund entered three new positions, sold out of three stocks and trimmed a handful of other existing holdings during the three months ended June 30. Notable trades included an exchange of Alphabet Inc.’s Class C stock (GOOG, Financial) for its Class A (GOOGL, Financial) shares, new stakes in Warner Bros. Discovery Inc. (WBD, Financial) and Embecta Corp. (EMBC, Financial), a reduction in the Sysco Corp. (SYY, Financial) position and the divestment of Macy’s Inc. (M, Financial).

Investors should be aware that, just like 13F filings, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, they collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these limited filings can provide valuable information. You can read more about form NPORT-P at the SEC website.

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Alphabet

In its largest transaction for the quarter, Yacktman swapped its 2.22 million Class C (GOOG, Financial) shares of Alphabet for 2.22 million shares of its Class A stock (GOOGL, Financial), allocating 3.60% of the equity portfolio to the new holding.

GuruFocus estimates the fund gained 103.46% on its investment in the Class C stock, which was established in the first quarter of 2019.

The Mountain View, California-based tech conglomerate, which is the parent company of Google GOOG and YouTube, has a $1.47 trillion market cap; its Class A shares were trading around $111.14 on Tuesday with a price-earnings ratio of 1.01, a price-book ratio of 5.78 and a price-sales ratio of 0.27 following a 20-for-1 stock split that took effect on Friday. Prior to that, the stock was trading around $2,235.55.

The GF Value Line VALU suggests the stock is modestly undervalued currently based on historical ratios, past financial performance and future earnings projections.

Alphabet’s financial strength and profitability were both rated 9 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the company is supported by a robust Altman Z-score of 11.12 that indicates it is in good standing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.

Along with operating margin expansion, the company is supported by strong returns on equity, assets and capital that outperform a majority of competitors. It also has a high Piotroski F-Score of 8 out of 9, indicating business conditions are healthy. Boosted by consistent earnings and revenue growth, Alphabet also has a predictability rank of two out of five stars. According to GuruFocus research, companies with this rank return an average of 6% annually over a 10-year period.

Of the gurus invested in Alphabet’s Class A stock, Ken Fisher (Trades, Portfolio) has the largest stake with 0.31% of its outstanding shares. PRIMECAP Management (Trades, Portfolio), Spiros Segalas (Trades, Portfolio), Frank Sands (Trades, Portfolio), Chris Davis (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Bill Nygren (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio) and many other gurus also have notable positions in the stock.

Warner Bros. Discovery

The fund invested in 2.9 million shares of Warner Bros. Discovery (WBD, Financial), dedicating 0.58% of the equity portfolio to the stake. The stock traded for an average price of $18.65 per share during the quarter.

The media and entertainment company headquartered in New York City, which is the result of a recent merger between AT&T T Inc.’s (T, Financial) WarnerMedia and Discovery Inc., has a market cap of $34.44 billion; its shares were trading around $14.17 on Tuesday with a price-earnings ratio of 7.03, a price-book ratio of 0.60 and a price-sales ratio of 0.74.

According to the GF Value Line, the stock is significantly undervalued currently.

GuruFocus rated Warner Bros. Discovery’s financial strength 5 out of 10. In addition to insufficient interest coverage, the low Altman Z-Score of 2.15 indicates the company is under some pressure since assets are building up at a faster rate than revenue is growing. Further, the WACC eclipses the ROIC, indicating the company is struggling to create value.

The company’s profitability fared better, scoring a 9 out of 10 rating. Although the operating margin is in decline, its returns top a majority of industry peers. Warner Bros. Discovery also has a high Piotroski F-Score of 8 and steady earnings and revenue growth contributed to a 3.5-star predictability rank. GuruFocus data shows companies with this rank return an average of 9.3% annually.

With a 0.87% stake, Hotchkis & Wiley is Warner Bros. Discovery’s largest guru shareholder. Other top guru investors include Mason Hawkins (Trades, Portfolio), the Smead Value Fund (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), David Einhorn (Trades, Portfolio) and the Yacktman Focused Fund (Trades, Portfolio).

Embecta

The fund picked up 1.52 million shares of Embecta (EMBC, Financial), giving it 0.57% space in the equity portfolio. Shares traded for an average price of $28.89 each during the quarter.

Recently spun off of Becton, Dickinson and Co. (BDX, Financial), the Franklin Lakes, New Jersey-based health care company, which specializes in diabetes care, has a $1.44 billion market cap; its shares were trading around $25.01 on Tuesday with a price-earnings ratio of 2.66 and a price-sales ratio of 2.43.

Since its spinoff on April 1, the stock has tumbled over 40%.

Embecta’s financial strength and profitability were both rated 5 out of 10 by GuruFocus. Adequate interest coverage and a high Altman Z-Score of 3.21 indicate it is in good standing.

Similarly, the company’s margins and returns are outperforming versus competitors.

The Yacktman Fund (Trades, Portfolio) is Embecta’s largest guru shareholder with a 2.63% stake. Al Gore (Trades, Portfolio)’s Generation Investment, First Eagle Investment (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Simons’ firm, Barrow, Hanley, Mewhinney & Strauss, among others, also hold the stock.

Sysco

Impacting the equity portfolio by -0.50%, the fund curbed its Sysco (SYY, Financial) holding by 18.37%, selling 477,600 shares. During the quarter, the stock traded for an average per-share price of $83.73.

The fund now holds a total of 2.12 million shares, which represent 2.67% of the equity portfolio. GuruFocus data shows Yacktman has gained an estimated 72.71% on the investment so far.

The foodservice distributor headquartered in Houston has a market cap of $44.44 billion; its shares were trading around $87.22 on Tuesday with a price-earnings ratio of 44.97, a price-book ratio of 33.58 and a price-sales ratio of 0.69.

Based on the GF Value Line, the stock appears to be fairly valued currently.

GuruFocus rated Sysco’s financial strength 5 out of 10. As a result of issuing new long-term debt over the past three years, the company has weak interest coverage. The Altman Z-Score of 5.28, however, indicates it is in good standing. The ROIC also exceeds the WACC, so value creation is occurring.

The company’s profitability fared better with a 7 out of 10 rating. While the operating margin is in decline, its returns are outperforming a majority of industry peers. Sysco also has a high Piotroski F-Score of 7. Despite recorded losses in operating income and declines in revenue per share, it still has a one-star predictability rank. GuruFocus says companies with this rank return an average of 1.1% annually.

Of the gurus invested in Sysco, Nelson Peltz (Trades, Portfolio) has the largest stake with 2.26% of its outstanding shares. Yacktman Asset Management (Trades, Portfolio), PRIMECAP, the Parnassus Endeavor Fund (Trades, Portfolio), Mairs and Power (Trades, Portfolio) and Dalio also have significant positions in the stock.

Macy’s

With an impact of -0.37% on the equity portfolio, the fund sold its 1.2 million remaining shares of Macy’s (M, Financial). During the quarter, the stock traded for an average price of $22.65 per share.

According to GuruFocus data, Yacktman lost an estimated 23.34% on the investment over its lifetime.

The iconic department store chain based in New York has a $4.97 billion market cap; its shares were trading around $18.46 on Tuesday with a price-earnings ratio of 3.50, a price-book ratio of 1.52 and a price-sales ratio of 0.22.

The GF Value Line suggests the stock is fairly valued currently.

Macy’s financial strength was rated 5 out of 10 by GuruFocus, driven by adequate interest coverage. The Altman Z-Score of 2.7, however, indicates the company is under some pressure due to a decline in revenue per share. The ROIC also surpasses the WACC, so value is being created.

The retailer’s profitability scored a 7 out of 10 rating on the back of margins and returns that top a majority of competitors. Macy’s also has a high Piotroski F-Score of 8 and a one-star predictability rank.

With a 2.78% stake, David Tepper (Trades, Portfolio) is Macy’s largest guru shareholder. The retailer is also being held by Simons’ firm, Yacktman Asset Management (Trades, Portfolio), John Hussman (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Caxton Associates (Trades, Portfolio).

Additonal trades and portfolio performance

During the quarter, the fund managers also sold out of Vitesco Technologies Group AG (XTER:VTSC SC , Financial) and slimmed its holdings of Continental AG (XTER:CON, Financial), Brenntag SE (XTER:BNR, Financial) and Associated British Foods PLC (LSE:ABF, Financial).

Yacktman’s $6.74 billion equity portfolio, which is composed of 57 stocks, is largely invested in the consumer defensive, communication services and technology sectors.

GuruFocus data shows the fund underperformed the S&P 500 Index in 2021 with a return of 19.63%. The benchmark posted a 28.70% return.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours.