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)

TriQuint Semiconductor

$5.98

***

Pericom Semiconductor

$16.92

***

Cash Systems

$5.30

*

Multi-Fineline Electronix

$18.46

**

Synutra International

$40.11

*

Coley Pharmaceutical

$7.90

*

Sources: Motley Fool CAPS, Yahoo! Finance.

Cellular-components maker TriQuint has plenty of fund fans, two of which are highly rated by Morningstar. Allow me to introduce you:

  • The Boston Company Small Cap Growth (SSETX), a tiny no-load fund that has topped its Morningstar peer index by more than seven percentage points annually over the past decade. And it gets better. Small Growth yields 3.14% in alpha (versus the Russell 2000 Growth Index), a measurement that specifies the amount of return that's attributable to management expertise rather than market whims. Too bad this fund is closed to new investments, eh?
  • Royce Opportunity Inv. (RYPNX), another (sniff) closed fund that's a sister to two Motley Fool Champion Funds selections. And, like its siblings, has produced huge returns: Morningstar ranks Opportunity first in the small value category for the past five- and 10-year periods. Wowza.

Of these two, it's the fund from Chuck Royce's shop that interests me most. Here are its top five stock positions:

Company

Last Closing Price

CAPS Rating
(out of 5)

Network Equipment (NYSE:NWK)

$11.82

***

CIRCOR Int'l (NYSE:CIR)

$43.53

****

Haynes Int'l (NASDAQ:HAYN)

$82.01

****

Kaman (NASDAQ:KAMN)

$31.59

*****

Timken (NYSE:TKR)

$32.09

*****

Sources: Morningstar, Motley Fool CAPS.

This strikes me as a pretty strong portfolio. But, among the candidates, custom steelmaker Timken interests me most.

I know, I know -- I've never been much for boring value plays. Reasonably priced growth stocks are far more to my liking. But that doesn't mean I ignore cheap stocks altogether. Doing so would be stupid, especially when the stock in question pays an above-average dividend as Timken does. (Offering a 2.2% yield as of this writing.)

Timken's valuation also looks good, just as it did when fellow Colorado Fool Bob Fiore, also known as TMFdatabasebob, picked the stock to outperform last October. Quoting:

Value Line follows nine other companies in Timken's peer group. ... The average cash flow multiple accorded the ten is 11 x Cash Flow. Timken's multiple is the lowest. ... To quote Value Line: "Asian growth initiatives and Project ONE, a five-year program designed to improve business processes and systems that the company launched in 2005, ought to enable further margin expansion to 2009-2011, especially in the Industrial Group".

I'll add that Timken sells each dollar of revenue for just $0.60, a sharp discount to the industry average of $0.97 and to peers such as U.S. Steel (NYSE: X  ) and Nucor (NYSE: NUE  ) . Royce Opportunity appears to have noticed.


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