Finding Bargains in a Downturn

This analyst blog is part of our coverage of the 2016 Morningstar Investment Conference.

At the Morningstar Investment Conference on Tuesday, Morningstar's Russ Kinnel sat down with three diverse managers--Thyra Zerhusen from Fairpointe Capital, Vincent Montemaggiore from Fidelity, and Charles de Vaulx from International Value Advisors--to discuss their investing today.

Kinnel asked each panelist to discuss a single stock each manager has owned for a long time and why. Zerhusen, who takes a fundamentals-based approach to finding mid-cap stocks with solid business models, good long-term growth potential, and reasonable valuations, spotlighted

De Vaulx notes that

Montemaggiore points to conglomerate Fresenius, which Bronze-rated

The panelists turned to what they've been buying and selling this year. De Vaulx noted that the quality names he favors didn't fall very far in the first-quarter market malaise, so his buying was minimal. He did add to

Zerhusen added Whirlpool WHR to the portfolio this year. She noted that the company has been on her watch list for a couple of years, and fell into buying range in January. Zerhusen expects the company to benefit from increased consumer spending; it didn’t hurt that competitor

Montemaggiore, meanwhile, added Axel Springer AXELF. He describes the publisher as a "legacy newspaper company that has good digital assets and classified assets." The company generates heady free cash flows and boasts a strong balance sheet, but the market is undervaluing its classified assets, Montemaggiore says. On the flip side, he sold longtime holding

Kinnel ended the session by asking the panelists what role macroeconomic issues--such as the U.S. presidential election or Brexit--play in their investment decisions. Zerhusen noted that while she and her team are obviously aware of macroeconomic issues, she doesn't let them overly influence her bottom-up approach. De Vaulx doesn't get wrapped up in macroeconomic issues either, noting, "Only God knows the future and he ain't telling us." He did say, however, that he pays close attention to credit trends in particular, because excesses in credit "never end well." Lastly, Montemaggiore said he’ll use the volatility that macroeconomic events can trigger to buy companies he has wanted to own but couldn't because of their valuations. He also reviews how the portfolio looks in aggregate to make sure he's not taking inadvertent macro bets. He brought down the portfolio's exposure to the U.K. due to Brexit, for instance; he says that his current exposure is manageable. "I want stocks to drive the fund," he says.