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Oracle Corporation (ORCL), Wells Fargo & Co (WFC): Donald Yacktman’s Two Newest Buys

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Donald Yacktman is one of the famous value investors, managing more than $11.5 billion in net fund assets. In the past 10 years, the Yacktman Fund has managed to deliver a decent annualized return of 10.97%, beating S&P 500’s return of only 7.30% in the same period. His investment philosophy is to invest in a good business with shareholder-oriented management at a low price.

Oracle Corporation (NYSE:ORCL)

In the second quarter 2013, Yacktman initiated long positions in two stocks: Oracle Corporation (NYSE:ORCL) and Wells Fargo & Co (NYSE:WFC). He bought 7.1 million shares of Oracle Corporation (NYSE:ORCL), accounting for 2.4% of his total portfolio while he owned 2.1 million shares of Wells Fargo & Co (NYSE:WFC), representing 0.94% of his total portfolio. Let’s take a closer look to determine whether or not we should follow Yacktman into those two stocks.

Wells Fargo & Co (NYSE:WFC) – the largest position in Warren Buffett’s portfolio

Wells Fargo & Co (NYSE:WFC) is also one of the favorite long-term investments of legendary investor Warren Buffett. Wells Fargo is the largest position in Buffett’s portfolio now, with more than 458.17 million shares, representing nearly 20% of his total portfolio. Since the beginning of the year, Wells Fargo & Co (NYSE:WFC) has provided a sweet return, gaining more than 27% on the market. Wells Fargo & Co (NYSE:WFC) is proud to have a presence in more communities than any other U.S. bank, with 9,096 stores, serving more than 70 million customers. The bank has the market-leading position in consumer and small business lending, residential mortgage and the commercial market.

Investors might like Wells Fargo with its consistent growth in EPS in the past 14 quarters, from $0.45 per share in the first quarter 2010 to $0.98 in the second quarter 2013. In the second quarter 2013, its average core deposits came in at $936 billion, with the net interest margin of 3.46%. Wells Fargo targeted to deliver the efficiency ratio of 55%-59%. The targeted ROA stays in the range of 1.30%-1.60% while the ROE is expected to be around 12%-15%.

For the full year 2013, Wells Fargo planned to spend more money than 2012 to repurchase its shares. If Wells Fargo just buys back $4 billion worth of shares like last year, the repurchase yield is around 1.74%. Wells Fargo is trading at $43.50 per share, with the total market cap of $230.70 billion. The market values Wells Fargo at 10.9 times its forward earnings and 1.54 times its book value. At the current trading price, Wells Fargo offers investors a decent dividend yield at 2.8%. Consequently, along with the potential share repurchases, the total yield might reach around 4.54%.

There are three things that make Wells Fargo a good long-term pick. First, its profitability. It enjoyed the highest net interest margins compared to other big banks including Citigroup Inc (NYSE:C), Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM). Second, Wells Fargo has been benefiting from a rising trend of mortgage originations, due to its market-leading position with a 22% market share. Third, Wells Fargo is famous for conservative traditional lending under the leadership of Chairman and CEO John Stumpf. Warren Buffett also added Wells Fargo to Berkshire Hathaway Inc. (NYSE:BRK.A)‘s portfolio in the first quarter this year.

Income investors might also like JPMorgan Chase & Co. (NYSE:JPM) with its highest dividend yield and potential share buybacks. JPMorgan Chase & Co. (NYSE:JPM) is trading at around $55.30 per share, with the total market cap of $210 billion. JPMorgan Chase & Co. (NYSE:JPM) has a lower valuation than Wells Fargo, at 9.1 times its forward earnings and nearly 1.1 times its book value. At the current price, JPMorgan Chase & Co. (NYSE:JPM) offers shareholders a 2.8% dividend yield. Through the first quarter next year, JPMorgan Chase & Co. (NYSE:JPM) plans to return cash to shareholders by its $6 billion share buyback authorization. A $6 billion share buybacks could create a 2.86% additional yield for shareholders. Thus, the total yield could reach nearly 5.66%.

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