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)

SWS Group

$17.80

****

Energy Conversion Devices (NASDAQ:ENER)

$56.89

***

RH Donnelley

$6.50

**

Empire Resorts (NASDAQ:NYNY)

$3.76

**

Virgin Mobile USA

$3.43

**

Source: Motley Fool CAPS.

Financier SWS has several fund fans, but only one merits five stars according to Morningstar.

Let's revisit the Keeley Small Cap Value (KSCVX) fund. Managed by top investor John Keeley Jr. since 1993, Small Cap Value has obliterated both its best-fit index and its category peers over the past five- and 10-year periods.

The past five years have been especially kind; since 2003, Keeley Jr.'s picks have returned more than 23% annually. I'd prefer Small Cap Value not demand a 4.50% front-end load, or a somewhat-high 1.33% expense ratio, but how do you argue with those returns?

Here's a look at five of the top stocks Keeley Jr. owns today:

Company

Last closing price

CAPS Rating (out of 5)

Walter Industries (NYSE:WLT)

$91.63

****

Lindsay  (NYSE:LNN)

$106.80

***

Alpha Natural Resources (NYSE:ANR)

$68.43

****

McDermott Int'l (NYSE:MDR)

$60.36

*****

Foster Wheeler (NASDAQ:FWLT)

$79.60

*****

Sources: Morningstar, Motley Fool CAPS.

There are some good choices here. Walter Industries had been a three-bagger for Motley Fool Hidden Gems subscribers and is still growing fast. McDermott International has extraordinary support from both the Street and some of our best stock pickers in CAPS.

But Foster Wheeler is, once again, my favorite from Keeley's list. Let's turn to All-Star paats78 for the thesis, posted roughly two weeks ago:

[A]nnounced good earnings, beat estimates by $0.12 per share. The stock got beat up due to the fact that the CEO shared a softness in the [North American] market but this sector is about 10% of total revenue for the company. Their backlog has grown and they will continue to have earnings growth.

OK, but we've heard that before. How do we know that management has the wherewithal to produce growth in a tight market? We don't. Nevertheless, I'm reassured by Foster Wheeler's heady return on invested capital, which reached 46% over the trailing 12 months and hasn't been below 18% since 2002.

Trends are also working in the company's favor, All-Star Chicken114 argues in this pitch from a week ago:

The key to this company is its specialization in designing and building heavy industrial facilities w/ emphasis on energy-related programs. The spotlight is on using their engineering skills to improve oil and gas exploration, electric utilization, liquefaction terminals etc. [Foster Wheeler] has the necessary environmental expertise. They have drastically cut debt. Big opportunities are here now to sign major contracts.

I agree, but I'm more interested in what you think. Would you own Foster Wheeler, or any of the stocks in Keeley's value-driven 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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