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Yacktman Increases Heavily in Cisco Systems, Buys Dell - Yacktman Fund 4th Quarter Update

By: GuruFocus
Posted: 1/28/2013 5:18:00 PM
Referenced Stocks: HRB;NWSA;PEP;PG;RIMM

Donald Yacktman has submitted several fourth quarter updates for the Yacktman Fund . For the three months ending Dec. 31, the fund returned 0.01 percent, beating the S&P 500's -0.38 percent fourth quarter return.

In the full year of 2012, the Yacktman Fund delivered 11.47 percent, according to the fund's fourth quarter overview.

Totaling 8 transactions, Yacktman's fourth quarter update consisted of 1 new buy, 4 stake increases, 2 stake reductions and 1 sale of Yacktman's entire stake in a company.

Among them, the transaction that made the largest impact to his portfolio was his 1,909 percent stake increase in networking solutions company, Cisco Systems ( CSCO ) .

From 22.5 million shares in the third quarter, the Yacktman Fund easily upgraded to 429.5 million shares in the next quarter, averaging $18.64 per share. The transaction also allowed Cisco to advance as the Yacktman Fund's fourth largest holding, right after News Corp. ( NWSA ), Procter & Gamble ( PG ) and PepsiCo ( PEP ).

This incredibly bullish move on Cisco by Yacktman has been prevalent since the fourth quarter of 2010, when the Yacktman Asset Management Co, was seen consecutively increasing to Cisco after buying over 5 million shares of the stock at $21.24, on average.

In a GuruFocus interview with Yacktman in August, the Guru said he prefers his large positions in companies like Cisco, in part because of their balance sheets:

"Cisco has more than $5 per share in net cash and generates approximately $1.50 per share in free cash flow. The stock is at 17, so less the $5 per share in cash, you are paying about $12 per share for the business. With a 12.5% free cash flow yield (net of the cash) Cisco does not even need to grow for us to have a solid investment."

Since the interview, Cisco has risen from $17 to $21.10 in trading price. Additionally its free average cash flow growth has been 12 percent in the last 12 months, while its average EBITDA growth rate was 33.2 percent, according to 10-Year Financials.

When it comes to tech shares like Cisco, Yacktman says "it's almost all about the price," according to his fourth quarter letter. He seems to gravitate his focus toward valuation more so than future growth prospects.

Although Cisco's market price has descended 13 percent over the past five years, it increased by 7 percent in the last year, currently exhibiting a positive trend line. Its fair value is $24.08, according to the GuruFocus DCF Calculator. It maintains a dividend yield of 2.1 percent.

GuruFocus ranks Cisco 3 stars in Business Predictability, 7 in Financial Strength and 8 in Profitability and Growth.

Also with a 3-star Business Predictability rank on GuruFocus among Yacktman's fourth quarter updates, is fellow tech stock, Dell Inc. ( DELL ) , which is the Yackman Fund's only new buy for 2012 fourth quarter.

At $13.03 per share, Yacktman's new holding consists of 6.4 million shares.

Dell's price trend is somewhat similar to Cisco's in that it is on track for a market price pick-up. In the weeks following its mid-November three-year low (of $9), the stock has been seeing a slow but steady rise, dipping into the new year. Since 2013 started, Dell's price has gained 32 percent.

While down 1.03 percent this afternoon, Dell's market price is currently $13.03. With a dividend payout ratio of 1.2 percent, Dell is ranked 7 is Financial Strength and 6 in Profitability and Growth. Its fair value on the GuruFocus DCF Calculator is $15.06.

Besides Cisco, the Yacktman Fund's fourth quarter stake increases include adding 25.64 percent to Stryker Corp. ( STK ) , adding 21.69 percent to Coca-Cola ( KO ) and adding 10.53 percent to Avon Products ( AVP ) .

Yacktman reduced 38.46 percent to his H&R Block ( HRB ) stake and 47.99 percent to his Research in Motion ( RIMM ) stake.

Finally for the Yacktman Fund, the Guru completely sold his shares in Liberty Ventures (LVNTA) .

*View more details about Yacktman's fourth quarter updates in Yacktman Fund Stock Picks. Also view the fund's undervalued stocks, high-yield companies and top growth stocks.

**Yacktman also updated his other fund, the Yacktman Focused Fund, for the fourth quarter. To read about his new purchases for this fund , visit Yacktman Focused Fund Buys Dell, Intel, Janus Capital, PepsiCo, Coca-ColaAbout GuruFocus: 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 Premium Members .