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Top 10 Buys and Sells from Our Ultimate Stock-Pickers

Most managers are positioning themselves for the next stage of the market rally.

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By Greggory Warren, CFA | Senior Stock Analyst

Given the run-up in the markets during the second and third quarters, we weren't too surprised to see relatively few new investment ideas coming out of the top holdings, purchases, and sales of our Ultimate Stock-Pickers. Many of the stocks in these portfolios have converged on our analysts' fair value estimates. That said, our managers were still fairly active during the third quarter, either adding to or subtracting from their existing positions, building positions in new names, and selling some holdings outright. Based on some of the commentary we've seen so far from our Ultimate Stock-Pickers, it looks like many of them have adopted the habit of continually reevaluating their holdings as the equity markets (and prospects for the companies in their portfolios) move around during the early stages of the economic recovery. This has allowed them to more quickly make adjustments to their holdings whenever they see an opportunity to either lock in a gain, or put money to work in either a new name or an existing position.

Many of our Ultimate Stock-Pickers also noted that they continue to see opportunities in health care, something we not only highlighted during a review of second quarter holdings but saw further evidence of in some of the conviction purchases we noted in an early read of our manager's holdings for the third quarter. Health care stocks have been under pressure for much of this past year over concerns about the impact that a government-sponsored health-care plan would have on the industry's profitability. The question for investors, though, has been whether or not these near-term issues would derail the long-term positive impact that the aging of the baby boomers is expected to have on the industry overall. Judging from some of the more recent conviction purchases by our Ultimate Stock-Pickers, the answer still appears to be no. In fact, health care was one of the five areas where our managers were overweight the market, with slightly more than 14% of their aggregate holdings in the sector at the end of the third quarter, versus less than 13% for the S&P 500 Index (SPX). The other four areas were business services (at 7% versus 3% for the market), consumer goods (17% versus 11%), financial services (20% versus 14%), and media (5% versus 2%).

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