About Fayez Sarofim
Philanthropist, endowment and pension funds manager and Texas icon.
These are some words and phrases that come to mind when describing the late Egyptian-born investor, Fayez Sarofim.
Sarofim reportedly passed away recently (May 27th, 2022) in his residence in Houston, Texas. While at first blush Sarofim’s name and success isn’t as well-known as the Buffetts or the Soroses of the world, he and his firm handled money for a lot of people and organizations.
Specifically, his firm reportedly manages pension money for Mobil Corp., General Electric and Ford (amongst others) as well as endowment funds for Rice University.
It should also be noted that Sarofim himself has made many meaningful donations and contributions to institutions through the country. For instance, he has allegedly given to Harvard Business School, Baylor College of Medicine, Memorial Hermann Hospital, the Texas Children’s Hospital and Houston’s Museum of Fine Arts among others.
Pictured above is my favorite city in the world, Houston, Texas
Sarofim’s legacy is one filled with long-term, intentional giving and I’m sure he will be missed.
Although his returns to the community have been sizeable, his investment successes have been notable to our team at MacroHint. Specifically, while many hedge fund managers and big-time investors have made millions and even billions from concentrated, seemingly risky bets, Sarofim had a different philosophy. He had a tendency to hold mostly blue-chip stocks that you and I might own today individually or in a mutual fund. Nevertheless, legend has it that when someone asked him what they should do after the stock market crashed in 1987, he simply told them to “Go fishing.”
He is also famous for saying that “Nervous energy is a great destroyer of wealth.”
He seemed calm, collected and risk averse while at the same time having a knack for achieving high returns.
No wonder Sarofim is a legendary investor who is seldom talked about or studied.
This is one of the reasons we think it could potentially prove to be beneficial to study the larger holdings of his portfolio. After all, we ourselves are investors who tend to think with a long-term horizon, wanting to compound investment returns over an extended period of time.
In this article we will be analyzing and discussing Fayez Sarofim & Co.’s top five recent investment holdings, that in total make up about 30% of the firm’s entire portfolio.
Before we get started, this article is not to be construed as investment advice and we are not saying you should invest in any of these companies. We are merely identifying and studying an investment firm’s stock holdings.
1. Apple (NASDAQ: AAPL)
Yep, Apple.
The trillion-dollar company with ultimate brand power, various product lines, extraordinarily strong profit margins and more growth to come.
Our team doesn’t feel the need to write much about Apple given all of this information. If you’re reading this, the likelihood of you owning at least one, if not multiple Apple products is incredibly high. While some could claim this to be a baseless assumption, in 2017 it was discovered that 64% of Americans own an Apple product.
That is insanity.
However, it’s a fact that should comfort both prospective and current investors in the company who have a long-term view, similar to that of Sarofim.
As it relates to having a long-term view on Apple, our team at MacroHint is also bullish on Apple given their push into the ultra-competitive streaming industry. While we typically are leery of any company’s efforts to infiltrate and dominate the industry, Apple has the brand power and customer base to do it and make money in the process.
As investors, we also appreciate the company’s ability to stay ahead of and even create trends.
A prime example of this is AirPods. In essence, they are regular headphones without the cord, not a very revolutionary idea in itself. However, Apple made it revolutionary. Although from our perspectives they are really expensive, the company seems to know its customers pretty well and subsequently, they know what they’re able to charge people while keeping product volume and demand high.
They sell a lot of AirPods.
As a stock, Apple is pretty much as good as you might’ve thought it was. No stock is immune to market shocks or general economic downturns, but Apple might not be a bad stock to have in your portfolio when the market comes tumbling down.
2. Microsoft (NASDAQ: MSFT)
Fayez Sarofim & Co. reportedly own around 7.3 million shares of Microsoft. While the natural instinct would be to assume that his firm owns $7.3 million worth of Microsoft stock, no, read it again.
That is a lot of stock. Specifically, that comes out to about $2.2 billion worth of Microsoft in the firm’s portfolio.
I thought my few shares were impressive!
While when many hear “Microsoft,” they instantly think of Bill Gates and Seattle. When we hear “Microsoft,” we want to know how they make money and how good they are at making money. After all, a company producing around $161 billion in total revenue in 2021 must be good at something.
Just to give you an idea of the computer and cloud company’s global market presence, they own a considerable 5% slice of the worldwide PC market. While 5% doesn’t sound like a lot at first, it is a lot.
The company generates revenue (and ultimately strong profits) in many different ways. To name a few, they own little-known companies such as Windows, Xbox, Bing, Office, LinkedIn and recently acquired video game conglomerate Activision Blizzard for a whopping $68.7 billion.
Through each of these different lines of businesses and companies, Microsoft generates substantial amounts of revenue whether from advertising, cloud storage products and capabilities, video game consoles, selling computers and software, licensing its products or keeping businesses, schools and other communities together over Microsoft Teams.
Like Apple, they’re also a trillion-dollar company!
Microsoft also has an incredibly lean balance sheet with approximately $334 billion in total assets and nearly $192 billion in total liabilities.
The company also generates incredible amounts of revenue, which have been on the rise over the past five years along with a lot of net income, as can be seen on their cash flow statement.
Oh, and their trailing twelve-month net profit margin is around 20% higher than that of the industry average. Along with their phenomenal returns when it comes equity, assets and investment, their brand and business strength and their recession-proof business model(s), no wonder Sarofim & Co. owns a nice chunk of Microsoft stock.
3. T. Rowe Price (NASDAQ: TROW)
T. Rowe Price is a major financial advisor company that was founded in 1937. They’re pretty much in the business of helping clients achieve their (long term) financial goals. According to their website, they offer services related to mutual funds, 401(k)s, employer retirement programs and an array of other customer services.
At first, we thought it was interesting and somewhat confusing that this was the firm’s third largest stock holding. Why wouldn’t they invest more in a more well-known company?
However, upon further review T. Rowe Price appears to be financially exceptional. Namely, the company’s balance sheet is tilted heavily towards total assets outweighing its total liabilities, their total revenue has been modestly increasing each year since 2017, and according to their cash flow statement, net income has grown each year as well (since 2017).
Additionally, their trailing twelve-month net profit margin is over 4% higher than the industry average, they currently offer an annual dividend of $4.80 and amidst all this success and financial strength, they have a price-to-earnings (P/E) ratio of around 10.
This company’s stock is objectively undervalued and has ridiculously favorable financials.
Sarofim & Co. seems to have a natural ability to find quality companies with a proven track record of customer-centered success along with strong financials that are appealing to investors.
4. The Coca-Cola Company (NYSE: KO)
Now back to a more classic, obvious long-term stock to hold for investors, Coca-Cola.
While there are a lot of factors and variables that could go against this company or any company in the consumer packaging and food and beverage spaces, Coca-Cola is a leader in this industry and is most likely best equipped to handle any storms that may come its way.
First of all, while Coca-Cola is arguably one of the strongest, most well-received brands on planet Earth, many are quick to forget that the company is also home to other huge, ubiquitous brands. For instance, you might have heard of Barq’s root beer, Diet Coke, Dasani, Fanta, Fairlife, Honest Tea, Minute Maid, Powerade, Simply, Schweppes, smartwater, Sprite, Topo Chico and Vitaminwater just to name a few.
This is brand power to the extreme.
It’s almost difficult to go to any public setting and not have the ability to consume one of their products.
I guess that’s the point!
However, the company is financially strong as well, maintaining a good balance sheet, consistent total revenue and positive, increasing net income since 2017. They are also very good at achieving a higher profit than that of the industry, which is hard to do in such a competitive industry to begin with.
Before we move onto the next and final stock that takes up a large spot in Fayez Sarofim & Co.’s portfolio, we feel the need to clear up a common misconception about Coca-Cola.
Specifically, there is The Coca-Cola Company (NYSE: KO) and there is Coca-Cola Consolidated (NASDAQ: COKE).
It can seem a bit confusing, but it should first be mentioned that The Coca-Cola Company is the stock that holds a large portion of the firm’s portfolio, not Coca-Cola Consolidated.
The different between ticker symbols “KO” and “COKE” is in how they make money.
Coca-Cola Consolidated or “COKE” is in the business of packaging and delivering Coca-Cola’s different beverages to your local gas station, the movie theatre near where you live, the restaurant you frequent, the vending machines at the college or university you attend and pretty much everywhere else.
Coca-Cola Consolidated handles the grunt work of getting the product from the manufacturing facility to your local establishment, in essence serving The Coca-Cola Company.
On the other hand, the more notable Coca-Cola Company or “KO” owns the rights to the secret formula that is in Coke.
We’re not kidding.
They make money by selling their secret ingredients to bottling facilities as well as selling the final product to distributors and the other previously mentioned venues (schools, restaurants etc..).
We just felt it was important to mention outline the main differences between two seemingly similar but separate business entities.
However, if you remember nothing from this section about Coca-Cola (NYSE: KO), just remember that they likely have some of the best brand power in the world, they have strong margins and a lot of intellectual property that should help investors sleep like babies at night.
5. Philip Morris International (NYSE: PM)
Lastly, Fayez Sarofim & Co. reportedly holds around $1.2 billion worth of Philip Morris International (NYSE: PM) stock.
Philip Morris is not a tobacco giant, but the tobacco giant.
The company currently has the largest market value when compared to formidable competitors Altria Group and British American Tobacco. However, these two competitors have a lot of ground to cover if they want to catch up to Philip Morris. Specifically, Philip Morris’ market value stands at around $145 billion, the largest in the industry and the second largest, Altria Group stands at almost $97 billion.
Philip Morris has a wide moat.
The tobacco industry itself is incredibly competitive and constantly under regulatory scrutiny, however Philip Morris appears to be in a good position to handle any problems that the company or industry faces.
It pays to be the industry leader.
It would be foolish if we neglected to discuss the brand power that Philip Morris maintains.
Marlboro is a brand owned by Philip Morris International.
Marlboro alone reportedly held 40% market share in the United States in 2017.
That is one brand and a lot of consumers.
While many speculate that vaping is going to severely impact Philip Morris and their future revenue, our team at MacroHint generally doesn’t see this as a threat to the company. Right or wrong, when it comes to smokers there are a lot of brand loyal consumers who don’t want to or sadly are unable to stop smoking cigarettes.
However, where others see threats, Philip Morris saw opportunity with one of their subsidiaries, Iqos.
This is the company’s ticket into the e-cigarette space and how they’ll likely stay ahead of the competition for years, decades and centuries to come.
On a financial basis, Philip Morris International appears boring, stable and sound, all of which we hoped to see in the company’s statements. Additionally, the dividend is strong with this one, as the company currently offers an annual dividend of $5.00. Receiving $5.00 for being a shareholder in the world’s largest tobacco manufacturer doesn’t necessarily seem like a bad deal from a strict investment perspective.
However, it should be noted that in recent history, there have been mounting concerns regarding increased cost pressures caused by global supply chain issues as well as its facilities and operations in Ukraine.
Many companies are trudging through supply chain-related struggles, however given the company’s market dominance and strength, we assume they are capable of dealing with these issues in the short and long term.
These are just a few of the risks that one should consider when investing in any tobacco company’s stock or any company’s stock for that matter.
Nevertheless, they are an industry leader that seems to be staying ahead of tobacco trends and is probably a good company to own stock in if you want to have to some portfolio exposure to the tobacco industry.
Ultimately, it our team’s opinion that one might have to wrestle with whether or not they’d want to be part-owner in a tobacco company. People have different views on the industry and the morality of supporting tobacco companies. If you’re a stone-cold objective investor, you might see long term opportunity in Philip Morris and want to have a stake in the company. On the other hand, if you’re an investor more concerned with the ethical and moral implications of your purchases, buying stock in the company might not be right for you.
Should you buy what Fayez Sarofim & Co. buys?
Maybe.
It’s up to you.
From our perspectives, these companies are fairly safe to invest in. This does not mean that if you invest, the stock will constantly appreciate, and you’ll become a billionaire. It just means that given the current macroeconomic uncertainties, we don’t think these are bad companies to park a portion of your money in. We firmly believe all these companies will be around until the end of time.
However, your portfolio objectives and financial capabilities are different than those of a professional investment firm.
Do your own due diligence and invest in what you believe to be right for you and your obligations, which might mean not investing at all. Also bear in mind that while this is a sizeable chunk of Sarofim & Co.’s portfolio, it is by no means the whole pie. There are many other holdings owned by the firm according to reports of their portfolio.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding publicly traded entities. It should also be understood that Sarofim and Co.’s portfolio might’ve changed since the publication of the linked report displaying the fund’s portfolio holdings. Some of these positions might have changed or been altered in some way and the aforementioned fund might not be invested in the securities mentioned above.