10 Stocks Held by the Most Successful Fund Managers

(Adds fund redemptions in the past week.)

BOSTON ( TheStreet) -- What if investors knew which stocks the best mutual fund managers were buying?

Now that's possible. Morningstar, the fund-ratings firm, tracks a group of what it calls its top managers of mutual funds to see what they own.

Even the most successful mutual funds this year have fought to retain investors as U.S. stock funds suffered outflows of around $45 billion during the third quarter of this year, "on par with last year's third quarter, which was the worst period for outflows since the fourth quarter of 2008." Funds shed $3.8 billion in the week ended Nov. 29, fund tracker Trim Tabs said today.

Managers' picks are somewhat pedestrian, but given the investing environment -- volatility has risen to a record -- that's where you want to be. Microsoft ( MSFT), a couple of soda and snack companies, and a big hug from the avuncular Warren Buffett isn't aggressive investing, but that's where we are.

No wonder. The S&P 500 Index has struggled to post a return this year. It's up 2.7% in a roller-coaster performance that has mutual fund investors headed for the sidelines.

But Morningstar says that "while we continue to see plenty of instances where managers are not moving outside of their comfort zones, sticking with names they already know when they have capital to put to work, we have seen enough of our 'Ultimate Stock-Pickers' moving into new names to have an impact on our list of top buys during the quarter."

Some scared fund managers, perhaps eager for a great payday, could just play it safe and track their benchmark index, but Morningstar's culling of its favorite managers shows some intrepid choices.

At this time, every stock pick carries extra weight, but those managers that go for it could outperform and attract new investors.

Interestingly, though, there haven't been particularly significant changes in the top 10 stock holdings of Morningstar's "ultimate stock-pickers" over the past eight calendar quarters, the firm said, adding to their confidence in these picks.

Here are 10 stock picks from Morningstar's number-crunching of its favored mutual fund managers:

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Microsoft ( MSFT) develops the Windows PC operating system, the Office suite of productivity software, and enterprise server products such as Windows Server. The Windows PC and Office franchises collectively account for nearly 60% of the firm's revenue.

"Looking at the trading activity among the other top 10 holdings, our ultimate stock-pickers were net buyers of Microsoft, which was a top 10 purchase for our (tracked fund) managers during the quarter," said Morningstar.

The company has a $214 billion market value and its shares, though down 9% this year, have a three-year average annual return of almost 10%.


Johnson & Johnson ( JNJ) ranks as the world's largest and most diverse health-care company. The company comprises three divisions: pharmaceutical, medical devices and diagnostics, and consumer.

With a project divided yield of 3.6%, the stock has been a favorite of big investors, but has little to show for it, although it's up 5% this year and it's three-year average annual return of is 5.6%.

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Exxon Mobil ( XOM) is on everybody's go-to list lately, as the largest member of the S&P 500 with a market value of $366 billion. It just reported third-quarter earnings of $2.13 per share.

Exxon is an integrated oil and gas company that explores for, produces and refines oil around the world. Its shares carry a 2.5% projected dividend yield. They are up 7.7% this year, and have a 10-year average annual return of 9.2%.


Wells Fargo ( WFC) is a bank that's making money, a rarity in this day. It just reported third-quarter net of $3.8 billion, or 72 cents per share. With the purchase of Wachovia, Wells Fargo has become a nationwide bank and one of the country's largest with $1.3 trillion in assets and 6,600 offices.

Its shares are down 21% this year and have a three-year average annual loss of 4.4%.

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Wal-Mart Stores ( WMT) is the nation's retail price leader in food and general merchandise and can regain market share at any time from more aggressive prices, says Morningstar.

Wal-Mart shares are up 10% this year and 3.4% on an annualized basis over the past three years.

Comparable-store sales growth came in at 1.3% higher at U.S. Wal-Mart stores in the third quarter -- not bad, not great. The company earned 97 cents per share in the period.

S&P has a "strong buy" recommendation on its shares. "We believe the company is well-positioned to benefit from both increased demand due to merchandise improvements in domestic stores and a focus on consolidating its international markets," the firm said in a research note.


Procter & Gamble ( PG) is the world's largest consumer-products manufacturer, with a lineup of famous brands including Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics and IAMs pet food.

Morningstar says that "with more billion-dollar brands than any other household product manufacturer, P&G sets the standard in the consumer universe."

The company's shares have a 3.4% projected dividend yield, but are barely break-even this year. But over three years, the shares have returned an average annual 2%.

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Berkshire Hathaway ( BRK.B), helmed by the noted Warren Buffett, is a holding company with a wide collection of subsidiaries, but primarily focused on the insurance industry.

Buffett is known as being smarter than the average investor, but his firm's shares are down 6.2% this year and have a three-year average annual return of 2.4%, well below the S&P 500's 3% decline this year. The company has a $182 billion market value.

Berkshire's other businesses are made up of a collection of finance, manufacturing, and retailing operations, along with railroads, utilities and energy distributors.


Coca-Cola ( KO), one of Warren Buffett's Berkshire Hathaway long-term picks, is the world's biggest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups.

Its shares are up 3.5% this year and have a three-year average annual return of 15%.

Supporting its share price, Coca-Cola has repurchased $2 billion of stock this year, and the company plans to repurchase another $300 million to $800 million during the fourth quarter, which could prop up earnings per share despite cost pressures.

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Pepsi ( PEP), a $100 billion beverage company, manufactures, markets and sells a variety of snacks, as well as carbonated and noncarbonated beverages. The company's broad portfolio of brands includes the well-known Pepsi, Gatorade, Tropicana, Lay's, Doritos and Quaker.

Its shares are about flat even on the year, but have a three-year average annual return of 7%.


ConocoPhillips ( COP) is an international integrated energy company, one of the biggest in the world. Its shares are up 4% this year and have a three-year average annual return of 13%.

Morningstar says "ConocoPhillips produces a higher proportion of natural gas than its peers and should benefit from environmental concerns that favor natural gas."

In July, the company announced plans to split its upstream and downstream operations via a tax-free spinoff of the refining and marketing business to shareholders by the first half of 2012, which is seen as beneficial to shareholders.

Morningstar says ConocoPhillips has been aggressively acquiring assets, including North America natural gas assets, Russian oil supplies (including a 20% stake in the Russian oil giant Lukoil ( LUKOY)) and a natural gas company in Australia.

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>>To see these stocks in action, visit the 10 Stocks Held by the Most Successful Fund Managers portfolio on Stockpickr.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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