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Investing Specialists

Top Buys and Sells at Oak Value Fund

A unique approach to value investing yields high-conviction trades at Oak Value.

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By Greggory Warren, CFA | Senior Stock Analyst

While most of our Ultimate Stock-Pickers have yet to file their third-quarter holdings with the SEC, we've had a chance to sift through the holdings, purchases, and sales of one manager,  Oak Value Fund (OAKVX), and have come away with several buy ideas that investors might want to consider for their portfolios. For those not familiar with the fund's inner workings, Oak Value's investment philosophy is grounded in the teachings of legendary value investors Benjamin Graham, Warren Buffett, and Philip Fisher, as well as the academic research of Michael Porter (whose "Porter's Five Forces" is a key framework for industry analysis and business strategy development). The managers of the fund--David Carr, Larry Coats, and Christy Phillips--focus on identifying and investing in a select few advantaged businesses that are run by able management teams, but only when those businesses can be bought at very attractive valuations.

Although this does not sound too dissimilar from the criteria used by many of the value managers on our list of Ultimate Stock-Pickers, Oak Value has spent a lot of time over the last five years refining its process. Unlike many value investors, who begin with what is most attractive from a valuation standpoint and then go through the process of analyzing those opportunities to identify their potential investment universe, the managers at Oak Value focus on what they consider to be the best businesses out there (regardless of valuation), and then transact in the securities of those firms only when there is a wide enough margin of safety to warrant purchasing them. The "investable universe" for the managers at Oak Value is composed of businesses that have high operating margins, high returns on equity, and high returns on invested capital, as well as some sort of competitive advantage that will allow them to keep competitors at bay for an extended period of time.

The Morningstar Ultimate Stock-Pickers Team does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.