Stocks the Investing Legends Are Buying

Scraping together enough coin to win the annual luncheon auction with Warren Buffett is probably beyond the means of most investors. With the proceeds going to benefit charity, last year's winning bidder forked over $1.68 million for the privilege.

Feast or famine
But many investors would love the chance to chow down with Buffett and pick his brain on his investment philosophy and stocks he's considering buying. The same could probably be said for many other value investing legends, too.

Maybe we can't break bread with the greats, but we can peek at their stock ideas through their SEC filings. What we'll do here is pore over the reports of some of the top investors and see which stocks they've chosen as their best investments. We'll then check in with Motley Fool CAPS members to see if they agree.

First, a few caveats ...

• There's a delay from when the stocks were bought and when these investors file their paperwork, so they might have sold out since.
• And these legends may be hot investors now, but that can change in an instant. Bill Miller was a wunderkind for beating the market 15 years in a row -- then he went cold for three. He came back in 2009, but we don't know what 2010 will bring.

Contrary to popular opinion
So do further research, but in the meantime, let's take a look at Richard Perry, founder of hedge fund Perry Capital, which has an equity position valued at more than $1.8 billion. The hedge fund had its first losing year ever in 2008, but even then still managed to beat the S&P 500 by 10 percentage points. It rebounded by returning 25% last year, but lost out to the index by a percentage point.

One of Perry's more famous battles was with Carl Icahn when the two ended up on opposing sides in the merger battle between Mylan (NYSE: MYL) and King Pharmaceuticals (NYSE: KG). The deal ultimately fell apart, but the SEC ended up fining Perry $150,000 for its role in the merger deal.

Fund: Perry Capital
Website: www.perrycap.com
Number of Stocks Owned: 50
Top 5 Holdings: Endurance Specialty Holdings, SPDR (NYSE: SPY), Citigroup, Humana, Universal American
Top Sectors: Financials, information technology, health care

Unlike many of the investing legends we've looked at, Perry's portfolio is more diverse than most, and while secretive, his SEC filing shows he added 21 new positions to his portfolio. He bought such a large chunk of SPDRs, as a matter of fact, that it's already one of his top holdings.

*IMS Health was taken private on Feb. 25, 2010.

Price is what you pay
It seems every hedge fund took a stake in CIT Group as it was about to fail last year, helping many of them make their quarter at the same time. Carl Icahn, Seth Klarman, and Daniel Loeb have all been profiled here after having taken large stakes in the small business financier.

Teen clothing retailer Aeropostale has proven itself to be one teen retailer that's lived up to the hype, posting same-store sales that seem to climb ever upwards. Although a few setbacks have marred an otherwise hardy performance during this recession, it has been churning out respectable sales and earnings growth, separating it from rivals like American Eagle Outfitters (NYSE: AEO).

Despite the positive comparison, investors like CAPS member mistrgolf found its lower valuations an attractive marker:

Teen mall retailer offering value price points 20-30% below competition pleases parents and the teens think the merchandise is cool; that is magic in this economy! Growth rate for last 5 years is a steady 20% for sales, 26% for EPS with zero debt and almost a 10% net margin. With a P/E less than half of the growth rate, this one looks quite undervalued. As long as teens think it's cool, this should be a winner.

Similarly, Matt2h has found First Solar to be an incredible opportunity because the market has overlooked its potential. With a leadership position in the U.S., this solar stock should outperform the rest:

This company is WAY undervalued relative to its fundamentals. Right now it's like $104, $105. A screaming buy. Current price action is a referendum only on very recent, short-term performance. The clear frontrunner in American solar.

Value is what you get
Become an investing legend yourself by starting your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page.

Sign up today for the completely free service, and tell us whether these stocks are as good a value as these investing legends think they are.