Better Know a Stock Picker

Welcome, Fools, to part 29 of our several-thousand-part series, "Better Know a Stock Picker," which is loosely, but not too loosely, based on Stephen Colbert's "Better Know a District" from The Colbert Report.

Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?

Fidelity Low-Priced Stock (FLPSX)

Expense ratio

0.88%

Fund size

$38.8 billion in assets

1-year return

17.73%

5-year return

16.40%

10-year return

15.46%

Source: Fidelity

Top 5 holdings

Company

% of Assets

Petroleo Brasiliero (NYSE: PBR  )

2.57%

Safeway (NYSE: SWY  )

1.96%

D.R. Horton Incorporated (NYSE: DHI  )

1.87%

Health Management Assoc. (NYSE: HMA  )

1.40%

Next Group plc

1.28%

Source: Morningstar

Meet Joel Tillinghast
The fightin' team at Fidelity Low-Priced Stock is led by Joel Tillinghast, who was named Morningstar's domestic stock fund manager of the year in 2002, and was also just recently named one of the 10 best mutual fund managers around.

Color me unsurprised. Tillinghast, who's been at the helm of Low-Priced Stock since 1989, sticks it to Wall Street's stockinistas by buying cheap small caps that boast competitive advantages and predictable revenue. He and his team have found 700 worth owning so far.

To some, that would seem to be extreme diversification. Not Tillinghast. He told Morningstar in 2003 that Low-Priced Stock's broad-based portfolio has "kept us from being hurt by blowouts." Besides, his mentor, Peter Lynch, owned more than 1,200 stocks in Fidelity Magellan (FUND: FMAGX  ) .

Like Lynch, owning hundreds of winners has aided Tillinghast's performance. Low-Priced Stock has beaten the small-cap Russell 2000 index by more than 5% annually over the past 10 years. And he's winning again this year -- 17.73% vs. 17.43% as of Nov. 30 -- despite having $38 billion to put to work. Eat that, Wall Street.

How he invests
Tillinghast's secret? Doubling down when it makes sense to do so. Consider hospital operator Health Management, which he's been glowing about since at least 2003. Back then, Tillinghast told Morningstar that the firm sported "uninterrupted earnings" since its IPO and was introducing needed facilities in the West -- zigging as others were zagging. The stock is up 22% since.

And Low-Priced Stock still owns some shares Tillinghast bought in 1989. Talk about commitment. Or maybe it's that Tillinghast realizes that the classic Wall Street don't-bother-me-I'm-trading hamster wheel leads to higher costs and lower returns. Shocking!

Whichever is the truth, Tillinghast likes bargains he can hold for the long haul. Among his recent favorites: Dollar General (NYSE: DG  ) , Bed Bath & Beyond (Nasdaq: BBBY  ) , and ConocoPhillips (NYSE: COP  ) .

Is this fund for you?
So can Tillinghast deliver like Lynch? Sure. They've got plenty in common. Both are New Englanders (Tillinghast is from Rhode Island). And Lynch helped Tillinghast land a gig on the Fidelity research staff in 1986.

But in terms of investing philosophy, the two part ways. Lynch is a hero to growth-huggers like me. Tillinghast, on the other hand, prefers undervalued stocks. As he told Morningstar, "You don't want to pay so much for [a stock] that all the good things ... are fully discounted." Good advice, no?

Absolutely. That's why I love Low-Priced Stock. Well, that and its no-load 0.88% expense ratio. I'd press the "buy" button right now if I could. Alas, I can't. And neither can you, because the fund is closed to new investors. Bummer.

But don't fret, heroes. Several excellent and equally cheap small-value choices are still available. One, which joined the Motley Fool Champion Funds portfolio in the January 2005 issue, has busted the index by more than 23% and it's still going strong. (It's also one of several winners for advisor Shannon Zimmerman; click here to get 30 days of free access to the entire portfolio.)

And that's this week's profile. See you back here next week, fund nation. Good night.

Other top stock pickers:

Think you can't beat the market with funds? Think again! The selections in Shannon Zimmerman'sMotley Fool Champion Fundsportfolio are up an average of 28% vs. just 18% for their comparable benchmarks. An all-access pass is yours free for 30 days.

Fool contributor Tim Beyers, ranked 1,160 out of 17,166 in Motley Fool CAPS, is a regular viewer of The Colbert Report. (Stay the course.) Tim didn't own shares in any of the stocks or funds mentioned in this article at the time of publication. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile. Bed Bath & Beyond is a Stock Advisorpick. The Motley Fool's disclosure policy is always championship caliber.


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