Top-performing fund managers
have all devised a personal approach to investing, but they each
have one thing in common: They have moved significant portions of
their assets under management into consumer stocks.
' most-represented sector in his portfolio is consumer cyclical,
Yacktman's is consumer defensive and Warren Buffett's second
biggest is consumer defensive.
Consumer stocks are companies that make products that people use
frequently and cannot do without, such as food, pharmaceuticals
or utilities. Though never showing spectacular growth,
"defensive" stocks show consistent earnings and dividends through
the best and worst of times. Hence, investors are likely to head
for this sector when they sense economic turbulence ahead. But
these stocks also won't see corresponding huge earnings gains in
the event of an economic recovery. Buffett and Yacktman favor
Defensive stocks are the opposite of cyclical stocks - stocks
that will likely benefit from an economic upsurge. These
companies usually sell products consumers can do without if
necessary, but will purchase when they have extra cash and feel
optimistic about the economy. Kyle Bass feels more bullish about
consumer cyclical stocks.
Buffett believes in buying good companies at fair prices and
holding forever. His top consumer defensive stock pick is
), followed by second and third choices Procter & Gamble Co.
) and Wal-Mart Stores Inc. (
). Coca-Cola has been in his portfolio through decades' worth of
market ups and downs. Though not a fast grower - the company
gained 91% over the past 10 years - the maker of the globally
beloved beverage had consistent long-term performance, pricing
power and ever-increasing global consumption rates.
Buffett's long-term view made it highly profitable for him. Since
his purchase, he has made approximately $9.2 billion on the
stock, or a 766% gain through 2010, according to the AP.
Coke's performance over the shorter term has missed the rally of
the broader market, with its stock up 8.9% compared to 10.7% for
the S&P500 over the past year.
Procter & Gamble, which comprises 4.8% of Buffett's
portfolio, is an even slower grower. As the world's largest and
most profitable consumer products company, its stock has gained
73% over the past decade and grown revenue, EBITDA and free cash
flow in the single digits on average annually in the same span,
while growing its book value by 17.4% on average annually.
Shares of the company over the past year have outperformed the
S&P with a 16% increase, likely due to the interference of
Pershing Square Guru Bill Ackman, who poured $1.8 billion into
the company last July. Prior to his involvement, the stock had
remained in a two-year holding pattern.
On Jan. 25, Procter & Gamble reported a year-over-year 2%
increase in net sales to $22.2 billion, and a 138% increase in
net earnings to $4.08 billion, for fourth quarter 2012. It also
saw gross margins increased to 50.9% from 50.1%, increased its
dividend 7% to $0.562 per share from $0.525 per share and
decreased its share count by 7%.
Buffett has actually been reducing his shareholding of Procter
& Gamble since at least the fourth quarter of 2008, while
putting money into another consumer defensive stock, Wal-Mart.
Donald Yacktman, of Yacktman Asset Management, appointed 37% of
his portfolio to the consumer defensive sector, the most
represented. The long-term holder has owned shares of his largest
consumer defensive stock, Procter & Gamble, since 2008. He
has been adding to the holding every quarter since 2009.
His second stock is also a beverage stock - PepsiCo Inc. (
). He owns over 23 million shares of the company and his
investment predates 2008.
PepsiCo stock has gained 104% over the past decade and
outperformed the S&P by a wide margin over the past year,
gaining 18.8% compared to the index's 11%. Its financial growth
has outpaced Procter & Gamble, as well. Over the past decade,
its grew revenue 12.3%, EBITDA 9.5%, free cash flow 7.8% and book
value 7.8%, on average each year.
Yacktman addressed cyclicality regarding Pepsi and Proctor &
Gamble in his interview with GuruFocus last year:
"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
In a September 2012 CNBC interview, he went as far as to say that
"cola is a no-growth business" and that most of the company's
growth would come from Frito Lay in the future.
Kyle Bass of Hayman Capital Management has a shorter-term focus
as evidenced by his 85% quarter-over-quarter portfolio turnover
rate and emphasis on consumer cyclical stocks. He has a 24.7%
preponderance of his super-concentrated portfolio of 13 stocks in
the economically sensitive consumer cyclical sector, suggesting
he was anticipating an upsurge in the market.
Bass' largest position in the sector, Tempur-Pedic International
) is a $2.78 billion market cap mattress and pillow company with
a presence in 80 countries. The international exposure is
consistent with Bass' admonition in a CNBC interview this week to
own productive assets such as global businesses that sells things
in different currencies to protect against inflation he sees
Bass purchased 660,000 shares of the company for $29 per share on
average in the fourth quarter, or 1.1% of the shares outstanding.
His purchase came just before the company completed the $1.3
billion acquisition of Sealy Corporation, another mattress
company, on March 18. Combined, the two have formed the world's
largest bedding provider and will change its name to Tempur Sealy
International Inc. Its footprint will extend to North America,
South America, Europe, Asia and Australia.
Bass has also placed 7.9% of his stock portfolio into consumer
cyclical company Hyatt Hotels Corp. (
), a position he began in the third quarter and increased in the
fourth quarter. The company's stock gained 8% so far this year.
Hyatt also focuses on international growth, particularly in
emerging markets such as China and India. At year-end, it had
opened or was developing 50 Hyatt hotels in China and 50 in
India. It is also branching out to Chile, Colombia, Austria,
Russia, Netherlands and Abu Dhabi. The company derived about 20%
of its revenues from operations outside the U.S. in 2012 and
expects that number to increase, according to its 10-K.
Business at Hyatt's hotels has been good recently, with occupancy
near historically high levels and revenue increasing 7% in 2012
to $3.95 billion compared to 2011. Net income slipped 22% to $87
million in the same period.
See more of Warren Buffett's portfolio here, Donald Yacktman's
here and Kyle Bass' here.
Also check out the Undervalued Stocks, Top Growth Companies, and
High Yield stocks of Warren Buffett; the Undervalued Stocks, Top
Growth Companies and High Yield stocks of Donald Yacktman; and
the Undervalued Stocks, Top Growth Companies and High Yield
stocks of Kyle Bass.About GuruFocus: GuruFocus.com tracks the
stocks picks and portfolio holdings of the world's best
investors. This value investing site offers stock screeners and
valuation tools. And publishes daily articles tracking the latest
moves of the world's best investors. GuruFocus also provides
promising stock ideas in 3 monthly newsletters sent to