More Stock Ideas from Great Managers

One of the great things about working at Morningstar is there’s no shortage of stock ideas floating around the office. Our staff of 25 fund analysts is in constant contact with the industry’s leading fund managers, and we also systematically track portfolio holdings for all of the funds in our database.

To seek out promising new stock ideas, we scoped out the most recent portfolios from some of our favorite fund managers, and focused on stocks that showed up as new holdings. (You can find these yourself by entering a fund's ticker in the ticker lookup box on the upper left side of Morningstar.com's home page. Scan the list of top 25 holdings on Morningstar’s Quicktake Report--stocks that are new additions since the previous portfolio are highlighted with a nifty sunburst symbol.) When you see a new holding show up in the top 25, that’s usually a good sign that the manager has conviction in the stock. Here are some of the ideas that surfaced:

 IMS Health 
We’ve argued that this company has a ton of potential thanks to its unrivaled database of information on prescription trends, and Oakmark Select’s  (OAKLX) Bill Nygren is also a big fan of the stock. He picked up shares toward the end of 2001, and the fund now owns about 2% of the company’s outstanding shares. Thanks to the company’s abundant free cash flows and future growth opportunities, we value the shares at about $30 apiece.

 Xerox  (XRX)
Xerox is another relatively recent add for Oakmark Select. Although the office-machines maker is struggling with a hefty debt load and brutal competition from firms like Canon  (CAJ) and Ricoh, its turnaround program has shown some success. CEO Anne Mulcahy has been chopping costs, raising cash, and working to develop new products. Although the company’s ability to improve sales growth might still be a concern, at least it seems to be moving in the right direction.

Leucadia National  (LUK)
This insurance and financial-services company showed up as a recent add for Third Avenue Small-Cap Value  (TASCX). Manager Curt Jensen tries to buy shares that are selling at a substantial discount to their intrinsic value--and with this stock down about 18% for 2001, it fit the bill. The company boasts a strong management team and has compounded its book value at 25% per year for more than two decades.

 Comcast  
Weitz Value’s  (WVALX) Wally Weitz, who often shops in the media sector, picked  up some shares in cable operator Comcast, which is down about 22% over the past 12 months. Some investors have been skeptical about Comcast’s planned acquisition of AT&T Broadband’s assets, but the company has continued to generate impressive growth thanks to the surge in broadband services. Morningstar’s fair value on the stock is $38 per share.

Charming Shoppes  
FPA Capital’s   Bob Rodriguez has been a buyer in Charming Shoppes, which operates low-cost women’s clothing chain Fashion Bug and acquired Catherine’s stores in 2000. Charming took a restructuring charge of $24.5 million for the most recent quarter and is working on improving results by shuttering some of its weaker-performing stores. Rodriguez is often willing to buy beaten-down stocks and hold on while they work out their problems, and his past success with investing in lesser-known retail names makes this an intriguing stock.