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)

E*Trade

$5.17

****

Ryland Group

$28.07

*

Northwest Airlines

$18.45

*

Occam Networks

$4.08

*

Franklin Bank

$4.61

*

Sources: Motley Fool CAPS, Yahoo! Finance.

Several funds like broker E*Trade, but only one of these stocks gets a high rating from Morningstar. So allow me to introduce you to Eaton Vance Tax-Managed Multi-Cap Growth A (EACPX), whose manager, Arieh Coll, deserves a ton of credit for producing five years of better-than-19% average annual returns. Why? Alpha. Coll is a peer of championship manager Ken Heebner in this category, which measures the amount of fund outperformance that can be attributed to stock-picking skill.

I'm always interested in what superior stock pickers like. Accordingly, here are the top five stocks Coll is holding now.

Company

Last Closing Price

CAPS rating (Out of 5)

Annaly Capital Management (NYSE:NLY)

$20.49

***

Foster Wheeler (NASDAQ:FWLT)

$65.28

*****

Priceline.com

$101.79

**

Carolina Group (NYSE:CG)

$80.58

***

Hess (NYSE:HES)

$88.96

****

Sources: Morningstar, Motley Fool CAPS.

This strikes me as a pretty strong portfolio. Consider Foster Wheeler, an infrastructure and engineering company with a global client roster that produced triple-digit returns on capital in 2005 and 2006 and, at better than 70% for the year through September, is near that rarefied air yet again.

What gives? As Foolish colleague Dave Mock explained, infrastructure companies benefit from the same macroeconomic tailwinds lifting energy giants such as ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) .

Yet Foster Wheeler and its peers may still be well positioned in the event of a dramatic downturn, as CAPS All-Star marc64 explained last month:

Thinking about the uncertainty between recession and inflation, I conclude that the infrastructure spending is one of only two or three effective ways Bush and/or the next president can implement "an economic stimulus package" that addresses both the concerns farm and oil belt economists feel over inflation, AND jumpstarts stocks in strategic sectors of the economy, addressing Wall Street's worries about an "un-wealth effect" recession. Infrastructure spending also addresses the 'moral hazard' concern, and avoids bailing out the imprudent financial/lending houses. ... [S]ooner or later this sector will pick up, and [Foster Wheeler] will come with it.

I agree, and I'll add that, for years now, Foster Wheeler has been a massive generator of free cash flow, having produced more than $320 million in FCF over the trailing 12 months alone. The balance sheet, too, is excellent, with more than $840 million in cash and investments and just $131 million in debt.

As long as management continues to put its capital to good use via strategic expansion and selected debt repayments, this company should continue to prosper.

But that's my take. What's yours? Would you own Foster Wheeler, or any of the stocks in Eaton Vance Tax-Managed Multi-Cap Growth's portfolio, at today's prices? Log in to CAPS today, and let us know what you think. It's 100% free to participate.


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