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)

FCStone Group

$45.30

****

priceline.com

$111.91

***

Canadian Solar

$23.45

**

deCODE genetics

$3.64

**

DepoMed

$3.30

**

Sources: Motley Fool CAPS, Yahoo! Finance.

Commodities specialist FCStone Group has plenty of fund fans, two of which are highly rated by Morningstar and personal favorites of mine. Allow me to introduce you:

  • Baron Growth (BGRFX), an outstanding no-load fund that stock-picking superstar Ron Baron has steered to an eight-point-per-year drubbing of the category average over the past decade. How does he do it? Buy to hold, my friend. Unlike most managers, who'll rarely keep a stock for more than a few months, Baron turns over just 21% of his fund's portfolio annually.
  • Pennsylvania Mutual (PENNX), a Motley Fool Champion Funds pick which, for subscribers, hasn't yet lived up to its reputation as a market-beater. No way will that last. Top manager Chuck Royce is simply too great an investor. Morningstar ranks Pennsylvania Mutual ninth in 10-year annualized returns among small core funds. In simpler terms: $10,000 invested with Royce in 1997 would be worth more than $30,000 today.

Those who regularly read my articles know that I tilt toward aggressive growth in my personal investing. Today, I'll tip my cap to the cheapskates. Presenting the top five stocks held by Pennsylvania Mutual:

Company

Last closing price

CAPS rating (out of 5)

AllianceBernstein Holding (NYSE:AB)

$80.07

*****

Woodward Governor (NASDAQ:WGOV)

$69.74

*****

Lincoln Electric (NASDAQ:LECO)

$71.59

****

Oil States International (NYSE:OIS)

$32.00

****

Ensign Energy Services

$15.49

N/A.

Sources: Morningstar, Motley Fool CAPS.

This strikes me as a very strong portfolio. Not only does Royce emphasize top-rated stocks, which recent history suggests produce the top returns, but he's also crossing borders in his quest for winners.

I'm also struck by what you don't see. Royce won't limit himself to slow-growth cheapies. He'll also buy high-growth firms if the price is reasonable. Rofin-Sinar Technologies (Nasdaq: RSTI  ) and Dolby Laboratories (NYSE: DLB  ) are top-25 holdings, for example. Neither of these fast movers can be considered "cheap" by classic valuation standards, yet each has delivered exceptional returns year to date.

Of Royce's cheapies, Oil States and its 0.33 PEG ratio really tempted me. Trouble is, most oil services firms sport a very low PEG. Peer Superior Energy (NYSE: SPN  ) is even cheaper, at 0.31.

So I settled on AllianceBernstein, which, at more than 17 times trailing earnings, trades for a slight premium to its asset-management peers as defined by CAPS. But that buys a dividend yield of more than 6%, putting it well ahead of most competitors. The firm also sports excellent profit margins and high returns on equity and capital. I added AllianceBernstein to my CAPS watch list earlier today.

But that's me. What's your take? Would you own any of the stocks in Pennsylvania Mutual's portfolio at today's prices? Log into CAPS today and let us know what you think. It's 100% free to participate.

Help us in our goal to give every young person around the globe a financial education!  Learn more about the new direction of Foolanthropy, now in its second decade, here.


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