Picks from a Pro's Pro

 | Dec 11, 2012 | 1:00 PM EST  | Comments
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Stock quotes in this article:

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In all professions, there are pros and then there are the pros. In golf, you have hundreds of great golfers and then you have Tiger, Rory and Phil. The NBA has amazing athletes, and then you have LeBron and Kobe.

Make no mistake, even an unknown golfer on the PGA Tour can hit a 280 draw or a high fade almost at will. But guys like Tiger and Rory have something extra, almost unexplainable, that puts them in the winner's circle a lot more than anyone else. The same can be said for professional investors: Hundreds of solid investors make money over long periods, but there are others who separate themselves from the pack. The funny thing about investing is that you don't have to be bigger, stronger, or even faster to be exceptional. You just have to have an unyielding desire to own undervalued securities and the independence to shun popular overpriced securities.

Our profession does have its titans -- Buffett, Gross, Fink and Klarman, to name a few -- yet not all of them are in the spotlight. One such pro among pros is Don Yacktman, founder of the Yacktman Funds. Operating out of Austin, Texas, the 71-year-old is the consummate value investor exercises supreme patience and conviction against an industry often characterized by rapid-fire trading. The proof in the trading: Over the past decade, the flagship Yacktman Fund is up nearly 11% a year, almost double the return of the S&P 500. Yacktman's record was achieved without the use of leverage or shorts, but rather the dying art of simply buying quality businesses at undervalued prices. Considering Yacktman's success, he is not as well-known as other mutual fund stars Bruce Berkowitz or Bill Miller, despite overseeing more than $19 billion in assets.

But relative anonymity suits Yacktman and his clients just fine. It's rare to see Yacktman give an interview, and when he does, he is worth listening to. His top three positions are News Corp. (NWSA), Procter & Gamble (PG) and PepsiCo (PEP). Notice a theme? Yacktman is not completely bearish on the global consumer. Procter & Gamble is an interesting name because another of its large shareholders is Bill Ackman of Pershing Square. According to Yacktman, P&G is nearing the end of a cycle of contracting margins, and when you account for the margin growth and the 3.2% dividend yield, the view is that P&G will deliver double-digit returns over the next several years. In a market where 4% to 6% annually would be considered very good, P&G stands out.

Other names that that Yacktmans are bullish on (his son Steve is being groomed to take the helm) include Stryker (SYK), which makes orthopedic and reconstructive implants, surgical equipment, and neurovascular products. It's a great business with huge market potential despite a $20 billion market cap. Stryker trades at a price-to-earnings ratio of 15 and yields 2%. It was recently upgraded to a Buy by Goldman Sachs. Cisco Systems (CSCO) is another big position that Yacktmans keeps buying. Shares trade for $20, yield 3% and come with $4 in cash.

Despite the deadlock in Congress, investors like Yacktman are still finding much to like about equities. Most important, however, is Yacktman's willingness to sit tight and let value serve as its own catalyst. Interested investors should keep this name on their watch lists as a source of quality investment ideas.

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