Four offerings deemed to be right for the time.
Mutual Fund: Longleaf Partners
This fund got hammered in 2008. It lost 50.6% as big positions in several stocks--including Dell
The fund has always taken big stakes in firms facing plenty of issues, but it has been right much more often than not over time. We recall the late 1990s when the fund started building what became a 16% stake in struggling Waste Management
This bold fund will make mistakes. But we think every miss, such as General Motors
Exchange-Traded Fund: BLDRS Developed Markets 100 ADR Index
Low cost, big dividend yields, and high-quality holdings make this ETF a promising way to invest in the safest international equities.
This ETF tracks the Bank of New York Mellon Developed Markets 100 ADR Index, a market-cap-weighted index tracking 100 of the largest international companies that have shares listed on U.S. exchanges. This keeps the quality of the index holdings high, while keeping the benefits of diversification across both companies and sectors. We like the low expense ratio of 0.30% and the relatively high dividend yield on this ETF's underlying securities. We also slightly prefer the sector allocation of this ETF to rivals based upon the MSCI EAFE index because the fund holds smaller stakes in the vulnerable financials and industrials sectors while boasting larger investments in health care and the beaten-down energy sector. The fund's 20% stake in financials may still seem hefty, but by this point, it has very little exposure to the vulnerable British or Irish banks whose troubles made headlines in January.
As for the rest of the international markets, every stock suffered in the sell-off of 2008, the frogs and princes alike. This has generated some major bargains among the blue-chip companies held by the fund. Between the high quality of its constituent companies and desirable sector allocation, the ETF trades at an attractive discount to our estimated fair value of the underlying holdings. Equity investors who want to get paid while they wait for price appreciation should give this ETF a long look. (By Bradley Kay)
Management's expectation that 2009 earnings per share will fall 10% to 15% is in line with our projections. In addition, we think the firm's strategic decisions will benefit the firm over the long run. 3M plans to cut capital expenditures by 30% next year and save $200 million through bonus and vacation adjustments. Furthermore, the firm's health-care segment will likely remain resilient through trying times, offsetting continued weakness in electronics and other consumer-driven businesses.
We think 3M's pristine balance sheet and prudent cost control will preserve the company's wide moat. Based on our assessment of future free cash flows, we think the shares are worth $85 per share--well above the current share price. The stock not only earns a 5-star rating based on its valuation but also earns a Financial Health Grade of A and a Stewardship Grade of B. (By Haywood Kelly)
Separate Account: Keeley Corporate Restructuring Small Cap
Successful execution of a distinct strategy gives this separate account an edge. Manager and firm founder John Keeley specializes in corporate restructurings. He trolls for spin-off plays, firms emerging from bankruptcy, distressed utilities, or firms trading at big discounts to the sum of their underlying assets. The only constants are the presence of strong cash flow and some sort of catalyst to unlock value. Keeley has consistently hit the mark over time, and this strategy has a great long-term record.
Keeley has long found the most firms meeting his criteria among industrials and energy-related firms. These sectors swooned in 2008, so even though Keeley's picks were better than average, the fund got stung. But Keeley's sticking with his infrastructure and energy stocks because he sees ongoing growth and underfollowed stocks in these areas. For example, Walter Industries
This strategy's sector concentrations can leave it out of step with the market at times, but we have confidence Keeley will continue to outperform over the long term. (By Michael Breen)
Hindsight: Summer 2007
While our stocks picks have struggled, an ETF comes through.
Our stock picks from the Summer 2007 issue have struggled: Washington Mutual was a complete miss, and Motorola
Vanguard Dividend Appreciation
Mutual Funds, Lawrence Jones
ETFs, Paul Justice, CFA
Stocks, Haywood Kelly, CFA
Separate Accounts, Michael Breen