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Avon Products, Inc. (AVP), Patterson Companies, Inc. (PDCO): Donald Yacktman’s Small-cap Value Picks

Donald Yacktman’s Yacktman Asset Management has filed its 13F with the SEC for the reporting period of March 31. Yacktman founded Yacktman Asset Management in 1992 and the fund has generated 10.9% annualized returns since its inception. Throughout his career, Yacktman has focused upon equities that he believes are undervalued and is known to maintain distance from the companies he invests in, rather than take an active approach in trying to influence their direction. Another key strategy that Yacktman follows is to purchase great companies or invest in them when they are underperforming, a contrarian investment approach. As per the recent filing, the investment manager has a public equity portfolio valued at $21.71 billion, with its primary investments in consumer staples and technology stocks. PepsiCo, Inc. (NYSE:PEP), Procter & Gamble Co (NYSE:PG), The Coca-Cola Co (NYSE:KO) are among the top three stock holdings of Yacktman Asset Management, though in his article we’ll take a look at his top small-cap value picks.

Donald Yacktman

An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a fund manager with the knowledge and resources of Yacktman can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock picking expertise. Thus a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 84 percentage points and returning over 144%, while hedge funds themselves have collectively underperformed the market (read the details here).

Donald Yacktman
Yacktman Asset Management

Avon Products, Inc. (NYSE:AVP) is the largest small-cap investment of Yacktman Asset Management, which owns 35.82 million shares valued at $286.17 million. The beauty product company has been in business for more than 125 years and is well-known for its direct-selling model. Shares of Avon Products, Inc. (NYSE:AVP) jumped in excess of 4% after a company named “PTG Capital Partners” filed an acquisition offer for the company, which currently has a market cap of $2.92 billion. However, the company issued a press release to clarify the situation and its management denied receiving any such offer. The cosmetics manufacturer reported an 18% decline in its quarterly revenue to $1.79 billion in comparison to the same quarter one year ago. Avon Products, Inc. (NYSE:AVP) did also report a lower net loss for its first quarter of 2015 at $146 million compared to its year-ago loss of $167 million. Besides Yacktman Asset Management, Joel Greenblatt‘s Gotham Asset Management holds a considerable stake in Avon Products, Inc. (NYSE:AVP).

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