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Investing Specialists

Three Solid Buy Ideas from an Ultimate Stock-Picker Screen

We apply Jensen's approach to stock picking to generate quality buy ideas.

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By Brett Horn | Associate Director of Equity Research

Aside from sifting through the holdings, purchases, and sales of our top managers, members of The Ultimate Stock-Pickers Team keep tabs on the commentary put forth by these top managers in order to get a better feel for the thinking that went into their buy, sell or hold decisions. As a byproduct of this process, we are able to construct screens based on the methodologies that are utilized by some of our Ultimate Stock-Pickers to hunt for buy and sell ideas. One of the managers we look at regularly is the team at the  Jensen (JENSX) fund, which runs a large-cap stock portfolio that has posted market-beating returns for more than a decade. Because of the fund's strict and transparent investing philosophy, we can screen for stock ideas that not only meet Jensen's strict guidelines, but which can be validated by our own equity research. That is, after all, the core objective of Ultimate Stock-Pickers: to cross-check our stock research against the opinions of professional money managers.

Understanding the Jensen Approach
The portfolio managers at Jensen govern themselves by a very simple and rigorous set of stock-selection criteria. The fund will only invest in companies that have earned at least a 15% return on equity (ROE) in each of the previous 10 years. The main point of this methodology is to limit the fund's holdings to companies that Jensen believes are consistent value creators. In their experience, "when the ROE of a business falls below 15% it likely signals an erosion of competitive edge, and a shift in the landscape within the industry."

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.