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)

IXYS

$12.40

*****

Progenics Pharmaceuticals (Nasdaq: PGNX  )

$17.73

***

Inspire Pharmaceuticals

$4.94

**

Talbots

$11.68

*

abitibibowater

$13.04

*

Sources: Motley Fool CAPS, Yahoo! Finance.

Chipmaker IXYS has several fund fans, though none of them gets five stars from ratings agency Morningstar. So be it. I'm just as enthused by a three-star market-beater that joined the Motley Fool Champion Funds portfolio in the January 2006 issue.

Allow me to introduce you to Vanguard Explorer (VEXPX). Managed by a team of advisors and comprising -- get this -- more than 1,200 stocks, Explorer has outpaced its category peers over the past three- and five-year reporting periods.

Explorer also wins against the S&P 500, up two percentage points a year over the past five. But those results could be better. Explorer lags in alpha -- its outsized returns could just as likely be related to fortunate timing as to stock-picking skill.

Still, it's easy to like a fund that beats the market, charges no loads, and which asks just 0.41% in annual expenses. Too bad it's closed to new investors.

Here's a look at Explorer's top five stock holdings as of this writing:

Company

Last Closing Price

CAPS Rating (out of 5)

Cephalon (Nasdaq: CEPH  )

$69.37

*****

Microsemi (Nasdaq: MSCC  )

$27.28

***

AptarGroup (NYSE: ATR  )

$43.35

****

O'Reilly Automotive (Nasdaq: ORLY  )

$26.00

****

GameStop (NYSE: GME  )

$47.94

****

Sources: Morningstar, Motley Fool CAPS.

There are some interesting choices here. O'Reilly Auto is a proven hot stock that trades for less than 15 times estimated 2008 earnings, which I consider to be reasonably priced.

Biotech Cephalon faces a small dose of uncertainty thanks to an FDA rebuke of its plan to use pain drug Fentora to treat a wider array of ailments. The good news? Like O'Reilly, Cephalon trades for less than 15 times expected current-year earnings.

My favorite today, though, is GameStop for its excellent growth and pristine balance sheet. It's also in the right place at the right time, according to this pitch that CAPS investor clorox2 wrote in May:

Video games are bigger than Hollywood. Great games coming out this year, and many people have gotten involved with gaming for the first time through the Wii platform. GameStop is always packed with lines to the cash register. Sure, Wal-Mart is another place to buy games, but GameStop is the place to go.

Others, such as z5m2, like the long-term prospects of GameStop. Quoting from a pitch posted in early June:

Interactive entertainment is not only here to stay, but is the future of entertainment. Couple that with the fact that the age of the average gamer is growing older over time and we have a customer base that is simply getting bigger with every child reaching prepubescence, [and] we have [a] story for growth that is hard to match.

Fool co-founder David Gardner agrees; he made GameStop a pick for Stock Advisor in the October 2004 issue and it has more than quintupled since. Yet, with a 0.97 PEG ratio, the stock appears to me to still have room to run.

But that's my take. I'm more interested in what you think. Would you own GameStop, or any of the stocks in the Vanguard Explorer fund, at today's prices? Log into CAPS today and let us know what you think. It's 100% free to participate.

If you like seeing what superior stock pickers are buying, consider Motley Fool Champion Funds. Its collection of market beaters, including Vanguard Explorer, is up nearly 21% on their respective benchmarks as of this writing. Examine the entire portfolio with a free, no-risk trial.

Fool contributor Tim Beyers, who is ranked 17,630 out of more than 110,000 participants in CAPS, didn't own shares in any of the companies mentioned in this article at the time of publication. Wal-Mart is an Inside Value pick.

Find Tim's portfolio and his latest blog commentary. The Fool's disclosure policy has recurring fantasies about a desert island, margaritas, and a plate of burritos. Go figure.


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