Stocks the Investing Legends Are Buying

Scraping together enough coin to win the annual luncheon auction with Warren Buffett is probably beyond the means of most investors. With the proceeds going to benefit charity, last year's winning bidder forked over $1.68 million for the privilege.

Feast or famine
But many investors would love the chance to chow down with Buffett and pick his brain on his investment philosophy and stocks he's considering buying. The same could probably be said for many other value investing legends, too.

Maybe we can't break bread with the greats, but we can peek at their stock ideas through their SEC filings. What we'll do here is pore over the reports of some of the top investors and see which stocks they've chosen as their best investments. We'll then check in with Motley Fool CAPS members to see if they agree.

First, a few caveats ...
There's a delay from when the stocks were bought and when these investors file their paperwork, so they might have sold out since.

• And these legends may be hot investors now, but that can change in an instant. Bill Miller was a wunderkind for beating the market 15 years in a row -- then he went cold for three. He came back in 2009, but we don't know what 2010 will bring.

Contrary to popular opinion
So do further research on your own, but in the meantime let's take a look at Daniel Loeb, founder of hedge fund Third Point, which has an equity position valued at more than $1 billion. When hedge fund Third Point LLC takes an interest in a company, management takes notice. He's the epitome of the activist investor, taking positions in companies and letting management know -- often quite publicly -- when he disagrees with their strategies.

A few years ago Loeb turned his acerbic wit on the executives at PDL BioPharma (Nasdaq: PDLI), castigating them for their profligate spending and inept management. He publicly chastised managers at Star Gas, saying their stewardship earned them "a dazzling place in the firmament of bad management." He's also railed against Nabi Biopharmaceuticals (Nasdaq: NABI) for its tendency to "burn the furniture to heat the house."

Obviously, it can be great entertainment when Daniel Loeb sets his sights on your company.

Fund: Third Point
Number of Stocks Owned: 36
Top 5 Holdings: TransDigm Group, Citigroup (NYSE: C), PHH, HealthNet, WellPoint (NYSE: WLP)
Top Sectors: Health care, financials, consumer discretionary

Like many of the investing legends we've looked at, Loeb's portfolio is concentrated, and while secretive, his SEC filing shows he added 14 new positions to his portfolio. He bought such a large chunk of Citigroup, as a matter of fact, that it's already one of his top holdings.

Price is what you pay
As we've seen over the past few weeks, Loeb wasn't the only investing icon throwing CIT Group a life preserver. Both Carl Icahn of Icahn Capital and Seth Klarman at Baupost Group were part of a coterie of investors taking large stakes in the small business financier as they sought to stave off bankruptcy.

CAPS members like wally128 fears that Xerox will be in over its head, having overpaid for Affiliated Computer Services and diluting current shareholders. Loeb's filing shows he had positions in both, but with ACS shareholders receiving nearly five shares of Xerox for each ACS share they owned (plus $18.60 per share in cash), it looks like Third Point may have made out well on the ACS investment. Whether Loeb continues to hold Xerox in the future remains to be seen. 

He also likely got shares in Energy Partners in a roundabout way as well. The independent oil and gas producer emerged from bankruptcy last September, swapping debt from note holders for equity and issuing a total of 40 million shares. This might be one he holds onto, though, as it raised its production forecasts for the fourth quarter and the coming year by 11%, mainly because of three new wells in the Gulf of Mexico. Some 92% of CAPS members rating the exploration and production player agree, having marked it to outperform the broad averages. You can chime in on the Energy Partners CAPS page on whether you think Loeb's got it right on this one.

Value is what you get
Become an investing legend yourself by starting your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page.

Sign up today for the completely free service, and tell us whether these stocks are as good a value as these investing legends think they are.