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Investing Specialists

10 Stocks to Consider from Berkshire's Latest Portfolio

More than a few names in Berkshire's portfolio are beginning to look attractive.

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By Greggory Warren, CFA | Senior Stock Analyst

When we relaunched the Ultimate Stock-Pickers concept back in April 2009, we had no idea that the market was about to take us on a very wild ride. After rising close to 30% during the last seven months of 2009, the S&P 500 Index (SPX) rose another 15% in 2010, but not without its fair share of volatility, as the European credit crisis and its potential impact on the global economic recovery weighed heavily on shares in the second and third quarters of last year. So far 2011 is looking an awful lot like 2010, with the markets rising more than 5% during the first quarter (much as they did during the first quarter 2010) before hints of trouble in Europe during the second quarter led markets downward (just as they did during the second quarter of 2010). Unlike last year, though, when the markets dropped more than 10% during May and June, only to recover over the next three months, it doesn't look like we'll see a quick recovery this time around. The potential for more than one Southern European country to default on its debt, combined with the political posturing around our own debt and deficit in the United States, has created even more uncertainty for investors--who were already growing concerned about the pace and strength of the economic recovery.

With investors pulling money out of actively managed funds in both May and June (and the pace of these redemptions accelerating in July and August), we expect many of our Ultimate Stock-Pickers to be impacted by outflows, which will likely force some selling activity among these top managers. While we saw some of this occurring in the second quarter, we expect it to increase during the third quarter given the intense see-saw action in the markets during the first couple of weeks of August. That said, we'd made it a point to include a few insurance companies in our list of top managers when we relaunched Ultimate Stock-Pickers because, unlike their peers in the mutual fund business, the portfolio managers at insurance companies are not impacted by investor redemptions during weak market environments (like we are seeing right now). They also tend to be a bit more long-term oriented than fund managers, investing their portfolios according to the time horizon and payout profiles associated with the products lines underwritten by their firms rather than being concerned with beating a benchmark over the near term. While fixed income tends to dominate the average insurance company's investment portfolio, as the asset class provides a steady stream of cash flows and (in most markets) less risk than equities, there is always room for stock holdings, which can provide the potential for capital appreciation.

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.