25 Oct 2011 Yacktman - Q3 2011 Commentary ( Portfolio ) News Corp
News Corp’s cable content division is one of the most valuable media assets in the world. This unit, which consists of channels like Fox News, Fox Sports, FX, and National Geographic, has been growing earnings at 20+% a year for more than a decade, and today represents the majority of News Corp’s pre- tax earnings. Despite strong prospects for continued growth in the cable content business and significant value in other assets, the shares trade at only 12 times our estimate of next years’ earnings. Last quarter the company restarted its share repurchase plan, and in the last six weeks of the quarter reduced the total share count by more than 3%.
Consumer Staples – PepsiCo and Procter & Gamble
PepsiCo declined more than 11% during the quarter amid short-term business struggles and general market declines. At the end of the quarter, PepsiCo’s shares traded at lower prices than they did three years prior, even though earnings have increased by more than 35% since that time. PepsiCo now sells for less than 13 times our estimate of next year’s earnings which we think is very inexpensive given the quality and predictability of its businesses.
Procter & Gamble’s stock was a bright spot last quarter appreciating modestly in the down market. Next year, the company celebrates its 175th anniversary, a huge testament to its ability to successfully handle a wide variety of economic and business environments.
“Old Tech” – Microsoft and Cisco
Microsoft and Cisco are our fourth and fifth largest positions in each fund. During the quarter, Cisco declined less than 1% and Microsoft was off approximately 4%, performing far better than the market’s decline. We think the share price resilience was a reflection of the already low valuation placed on each stock.
Conclusion
We are highly confident about our holdings. We think the quality level of the companies in the funds is extremely high and valuations are attractive. We will work hard to objectively examine current positions and new opportunities and, as always, will continue to be diligent, objective, and patient when managing The Yacktman Funds.