Ten High-Conviction Buys from Our Ultimate Stock-Pickers
"Old tech" and "fortress balance sheets" are drawing our top managers' interest.
Brett Horn | Associate Director of Equity Research
Over the years, we've learned that successful investing requires that investors have their own point of view, which often means acting against the crowd. That said, completely ignoring the opinion of others is myopic, and often leads to disaster. While we at Morningstar benefit from the work of a large staff of stock analysts who evaluate companies under a consistent framework and methodology, we're not averse to learning from the insights of some of the best portfolio managers in the business. Through our Ultimate Stock-Pickers concept, we sift through the holdings, purchases, and sales of these top managers, hoping to not only uncover new investment ideas, but to gain further conviction in the recommendations of our own analysts through the real-world actions of some of the top minds in the industry.
With more than 80% of our top managers having reported their stock holdings for the most recent period, it is a good time to look at where they've been putting money to work by looking at both high-conviction purchases, and new-money buys. As you may recall, we believe that managers send signals about the level of conviction they have in a position by how much of their portfolio (on a percentage basis) they're willing to commit to a given name at any point in time. For example, we can probably safely assume that the managers at the Yacktman (YACKX) fund, which had 12.7% of its stock portfolio invested in News Corporation (NWSA) at the end of the first quarter, compared to 1.3% in Colgate-Palmolive (CL), have a higher degree of conviction in News Corp than they do in Colgate. That said, position size can sometimes be influenced by the amount of the portfolio a manager wants committed to a particular sector (especially when there are only a few truly investable ideas in the sector). It can also be influenced by large positions that might be difficult to unwind. For instance, Bruce Berkowitz holds a very large position in St. Joe (JOE) though his Fairholme (FAIRX) fund, which he might find difficult to either increase or decrease in size given that his fund holds about one quarter of all shares outstanding, and has effectively taken over leadership of the firm by capturing a majority of the company's board seats.
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.