The Stocks the Funds Are Buying

We all know which stocks have made Wall Street's Buy List. What I want to know -- and I'm guessing you do, too -- is who's doing the buying. Which funds are buying Wall Street's most popular stocks ... and how does their judgment compare with that of our Motley Fool CAPS community?

Here's our latest group of contenders:

Company

Last Closing Price

CAPS Rating (Out of 5)

GlobalSCAPE

$6.65

*****

Anooraq Resources

$5.10

****

Hansen Medical

$35.94

***

General Steel

$10.70

**

Transmeta

$12.75

**

Private Media Group

$3.63

*

Raining Data

$5.94

**

Sources: Motley Fool CAPS, Yahoo! Finance.

Robot doc Hansen Medical, after a round of selling a few months ago, gets the most love this week. Here are three high-rated managed funds that like the stock now:

  • BlackRock Health Care I (MAHCX), a no-load fund whose $2 million minimum investment is aimed at institutions. If recent history is any guide, they'd be smart to pile in. Co-managers Jordan Schreiber and Robert Hodgson are up almost 10 percentage points on their category peers year-to-date.
  • Alger Health Sciences (AHSAX), an excellent sector fund that has crushed its category peers over each of the last five years and outperformed the S&P 500 by more than six percentage points annualized over the same period. If only Alger didn't penalize investors with a 5.25% front-end load.
  • Manning & Napier Pro-Blend Maximum Term A (EXHAX), which sports a tenured team of pros who've been soundly beating the market, and peers, since at least 1997. And yet the fund still carries a very reasonable 1.16% expense ratio.

Of these, it's the cheap market-beater from Manning & Napier that interests me most.

Here's a look at its top five stock positions:

Company

Last Closing Price

CAPS Rating (Out of 5)

International Game Tech (NYSE:IGT)

$43.66

*****

Boston Scientific (NYSE:BSX)

$13.24

**

Novartis (NYSE:NVS)

$52.61

****

Wachovia (NYSE:WB)

$42.83

**

Southwest Airlines (NYSE:LUV)

$13.97

**

Sources: Morningstar, Motley Fool CAPS.

This strikes me as an interesting, though risky, portfolio. Consider Southwest. On the one hand, it's an airline, and oil is nearing $100 a barrel. On the other, it's again proved itself able to book a profit with comparable fares and emptier planes than peers such as US Airways (NYSE: LCC  ) and JetBlue (Nasdaq: JBLU  ) .

But there's more at work here than esoteric operating metrics. What makes Southwest attractive versus its peers is its cash production. Free cash flow has more than tripled to $770 million through the first nine months of 2007 compared with the same period last year.

CAPS investor jetamerica attributes the gain to Southwest's history of efficiency:

[Southwest] is the only airline in the world where every employee can work on every [one] of its 400+ aircraft, a huge cost benefit. It also has a history of hiring the best people in the industry at all levels and giving ALL EMPLOYEES the tools to make decisions. Every employee is a member of the profit sharing program that pays OUT every year, so they are all owners ...

I agree, and I suspect that Manning & Napier's top managers, who've been recent buyers of Southwest stock, feel similarly.

For me, it often helps to see what superior stock pickers are buying. If that describes you, too, then consider Motley Fool Champion Funds. Its collection of market beaters is up 16 percentage points on its respective benchmark as I write. Check out the entire portfolio with a free, no-risk trial.


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