Buffett, Yacktman: When great investors think alike

See what the investment gurus like about some of the stocks they hold in common.

By GuruFocus.com Jan 3, 2013 2:26PM
Stock market report copyright CorbisWarren Buffett and Donald Yacktman are two well-known, long-term value investors. Both have produced strong returns: 174.5% for Yacktman and a 163.3% increase in book value for Buffett's Berkshire Hathaway (BRK.A)(BRK.B), cumulatively, compared to 34.9% for the S&P 500 over the past ten years. 

 

Not surprisingly, the two investors have been attracted to many of the same stocks. They hold 11 in common -- the largest of which are Coca-Cola (KO), Wells Fargo (WFC) and American Express (AXP). Here's what they like about them.

 

Coca-Cola Co 

Buffett owns 400 million shares of KO, valued at $15.17 billion as of Sept. 30, 2012, accounting for 20.1% of his equity portfolio. Yacktman owns 13,473,621 shares of KO, valued at $511 million as of Sept. 30, 2012, accounting for 3.1% of his equity portfolio.

 

Coca-Cola, incorporated in September 1919, has a market cap of over $160 billion; its shares were trading around $37.43 on Thursday with a price-to-earnings (P/E) ratio of 19.2 and price-to-sales (P/S) ratio of 3.6. The stock has a dividend yield of 2.7%. Coca-Cola had annual average earnings growth of 9.6% over the past 10 years. GuruFocus gives Coca-Cola a 3.5-star business predictability rank.

 

Coca-Cola is Buffett's largest position. He began building it in 1988 for around $44 a share. Buffett has called himself "late to the party," but believes the company has great longevity. "Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today)," he wrote in his 2011 shareholder letter, "people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See's peanut brittle."

 

Buffett also said at the time of the new purchase: 

 

In 1988 we made major purchases of Federal Home Loan Mortgage Pfd. ("Freddie Mac") and Coca Cola. We expect to hold these securities for a long time. In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.  

 

Coca-Cola comprises a far smaller portion of Yacktman's portfolio -- 3.1% of the total. He commented on what he likes about the company in an interview with GuruFocus:

 

“We believe that companies that have low capital intensity and low cyclicality like Coke, Pepsi, or Proctor & Gamble have the ability to earn some of the highest returns. What you're looking for is both the low asset requirements and low cyclicality. It is at its best when a company sells a disposable product or a recurring service. We also like to see a large market share."

 

Wells Fargo  

Buffett owns 422,549,545 shares of WFC, valued at $14.59 billion as of Sept. 30, 2012, accounting for 19.4% of his equity portfolio. Yacktman owns 19,200 shares of WFC, valued at $1 million as of Sept. 30, 2012, accounting for 0.004% of his equity portfolio.

 

Wells Fargo has a market cap of around $180 billion; its shares were trading around $34.82 on Thursday, with a P/E ratio of 10.5 and P/S ratio of 2. The stock has a dividend yield of 2.7%. Wells Fargo had annual average earnings growth of 5.6% over the past 10 years. GuruFocus gives Wells Fargo a 3-star business predictability rank.

 

Wells Fargo achieved six consecutive quarters of record net income and earnings per share up to the third quarter of 2012. Chief Financial Officer Tim Sloan said the performance reflected a steady concentration on long-term metrics, such as ROA and ROE. He cited an improved efficiency ratio of 57.1%, within a target range of 55% to 59%.

 

American Express 

Buffett owns 151,610,700 shares of AXP, valued at $8.62 billion as of Sept. 30, 2012, accounting for 11.4% of his equity portfolio. Yacktman owns 246,500 shares of AXP, valued at $14 million as of Sept. 30, 2012, accounting for 0.084% of his equity portfolio.

 

Founded in 1850, American Express has a market cap of $64.32 billion; its shares on Thursday were trading around $59.10 with a P/E ratio of 13 and P/S ratio of 2.2. The stock has a dividend yield of 1.4%. American Express had annual average earnings growth of 6.8% over the past 10 years. GuruFocus gives American Express a 2.5-star business predictability rank.

 

Buffett began investing in American Express in the 1960s. In the past 10 years the stock has swelled 87.5%. In his 2011 letter, Buffett noted American Express as one of his large positions in companies he called "exceptional":

 

We view these holdings as partnership interests in wonderful businesses, not as marketable securities to be bought or sold based on their near-term prospects. Our share of their earnings, however, are far from fully reflected in our earnings; only the dividends we receive from these businesses show up in our financial reports. Over time, though, the undistributed earnings of these companies that are attributable to our ownership are of huge importance to us. That’s because they will be used in a variety of ways to increase future earnings and dividends of the investee. They may also be devoted to stock repurchases, which will increase our share of the company’s future earnings.

 

Buffett also said that he expected the earnings of the companies, including American Express, to increase in 2012 and many years into the future. 

 

Yacktman has also made a sizable return on his relatively minor position in American Express. He established it with about 400,000 shares bought for an average of around $23. He has been reducing the position as the share price has pushed to almost $58.



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