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)

American Railcar (NASDAQ:ARII)

$22.96

****

EOG Resources

$116.46

***

CryoLife

$8.48

***

Yahoo! (NASDAQ:YHOO)

$29.03

***

Grubb & Ellis

$6.73

**

Sources: Motley Fool CAPS, Yahoo! Finance.

American Railcar has plenty of fund fans, including billionaire investor Carl Icahn. But only two of its recent buyers earn five stars from Morningstar. Allow me to introduce you to:

  • Kinetics Small Cap Opportunities (KSCOX), a market-thumping fund run by championship managers Peter Doyle and Murray Stahl. And I do mean market-thumping. Doyle and Stahl, by investing in misunderstood stocks, have handily beaten both the S&P 500 and the Nasdaq in each of the past five years.
  • Keeley Small Cap Value A (KSCVX), which is also run by a champion stock picker: John Keeley Jr. Last year, Keeley made BusinessWeek's list of the top fund managers for investing in obscure opportunities such as spinoffs. His shareholders have reaped the benefits: Since 2002, Small Cap Value is up more than seven percentage points a year on its Morningstar category peers. Too bad that performance can't be had without first paying a 4.5% front-end load.

Because it isn't, we'll have to settle for a look at what Keeley is investing in now. Here are the top five stocks in Small Cap Value's portfolio:

Company

Last Closing Price

CAPS Rating (out of 5)

Foster Wheeler (NASDAQ:FWLT)

$62.82

*****

Walter Industries (NYSE:WLT)

$56.56

****

Foundation Coal (NYSE:FCL)

$54.42

**

McDermott International (NYSE:MDR)

$53.31

*****

Alpha Natural Resources   (NYSE:ANR)

$40.95

****

Sources: Morningstar, Motley Fool CAPS.

Notice the heavy emphasis on commodities. Foster Wheeler is a contractor to energy services firms. Walter Industries is a coal miner. So is Foundation Coal, as you'd expect.

Talk about an intriguing pattern. It's as if Keeley is betting on a continued surge in energy prices. Or, at the very least, stabilizing prices in a time of recession. If he's right, Small Cap Value is likely to suffer a lot less than its peers during a protracted downturn.

But that's understating it. Keeley is already profiting much more than others. Take Walter Industries. Shares of the miner are up more than 50% since the market meltdown began in January. More gains could be on the way, CAPS investor beegdawg007 argued two months ago:

The real long-term value in [Walter Industries] comes from the met coal side of the business. Last year, [Walter] sold ... met coal for an average price of $89/ton and the average cost of mining was in the neighborhood of $55/ton... Next year however, [met coal] prices will be in excess of $125/ton (some predict $155/ton) while the cost of extracting that coal will actually go down ... because the efficiency of the two primary mines is now increasing after [Walter] struggled with rearranging two of its mines last year. Next year the difference between the cost of mining and selling ... met coal will be in the neighborhood of $75 to $90 ton.

Impressive, yes? I'll say. But that's also just one Fool's take. What's yours? Would you own Walter Industries or any of the stocks in Keeley Small Cap Value's portfolio, at today's prices? Log into CAPS today and let us know what you think. It's 100% free to participate. 


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