Yacktman Talks Strategy

As 2013 approaches, top fund manager Donald Yacktman is focusing on high-quality stocks, as well as some much-maligned contrarian plays.

Yacktman tells Forbes that he likes stocks with high returns on assets, which generally means that the businesses have low capital requirements, nice market share, and the ability to fare well in good times or bad. An example is consumer goods giant Procter & Gamble, which makes such well known brands as Tide and Pampers. The firm generates tons of cash and also offers a nice dividend, two key things Yacktman looks for. “We are in an environment where PepsiCo and Procter are like AAA bonds, and the world is not rewarding you enough to go to actual AAA or AA bonds,” he says.

Yacktman also likes contrarian picks like C.H. Robinson, Research in Motion, and Hewlett-Packard. “What we try to do is to find the ideal business, which is like a beachball being pushed under the water, and the water is rising. Then, all you have to do is have patience. Eventually the pressure will come off, but the longer it takes, the bigger the pop when it finally does happen.”

When assessing a business, Yacktman uses a 10-year time horizon. “Most people just aren’t that patient. That’s one of the challenges in the investment business today,” he says. “The average stock market fluctuates about 50% from low to high in 12 months, and lower and lower transaction costs encourage speculation.”