One thing that has not changed much over the years is that a large chunk of assets is dedicated to consumer staples companies, which the managers like because the cash flows of these companies are steadier and more predictable than those of other industries. “It’s often an underpriced and unexciting area of the market and a good place to be when everything else is so expensive,” says Yacktman. His holdings in this group include Procter & Gamble and PepsiCo. With its strong Frito-Lay business, the latter company, he believes, “probably has the best positioning of any large packaged food company in the world.”
The fund has added a few international stocks in the last couple of years because the managers believe these offer a better value than comparable stocks in the U.S. One top fund holding is Samsung, which trades on the South Korean exchange. It’s “cheap compared to Oracle or Microsoft,” says Yacktman. While the stock has appreciated substantially over the last year, the company’s earnings have increased substantially as well. Shares also remain relatively inexpensive, especially in light of Samsung’s substantial excess cash.
One of the benefits enjoyed by the undervalued and underappreciated companies his team looks for is that sometimes they become acquisition targets. That happened in mid-December 2017, when the Walt Disney Company announced a deal to buy most of the assets of longtime Yacktman fund holding 21st Century Fox for $52 billion in stock. Investors have worried about the future of traditional media companies, which are battling the likes of Netflix and Hulu, but Yacktman and Subotky believed investors were overlooking Fox’s valuable international assets such as Star, the leading media company in India, and its 39% ownership of Sky.
These are not part of high-cost U.S. television bundles and do not get hurt when U.S. consumers cancel their cable subscriptions. “Post close, Disney will be the best positioned traditional media company with a significantly improved global position,” says Yacktman. “The remaining Fox assets include Fox News, Fox Sports and its network and television station businesses. These assets could generate more than $2 billion in annual free cash flow.”
