10 New Stocks on All-Star Fund Managers' List

BOSTON ( TheStreet) -- Who better to take investment cues from than some of the highest-rated mutual fund managers around?

Their buying habits should provide some direction for investors trying to decide how to play the shaky market this year after a bang-up first quarter and the desultory results since then.

According to a report Tuesday by fund-rating firm Morningstar, the first-quarter activities of the 26 top mutual fund managers it tracks in its Ultimate Stock Pickers series "tells us that our managers were anticipating an end to the run-up in the markets" so they built up cash to meet potential redemption requests, and perhaps also to keep some powder dry for future purchases if the market regains some semblance of normality.

And that conservative stance came during one of the strongest first-quarter performances for the S&P 500 in over a decade when it returned 12%. The index has since lost ground and is now up 5.7% on the year.

Morningstar's analysts sift through the quarterly reports of these elite funds it tracks in order to identify their top new buys, sells or changes to existing positions.

Big new buys catch the eye, of course, since they impart a greater degree of confidence in a stock on the part of a fund manager. "New-money purchases provide us with the most insight into what our top managers think are the most attractive buying opportunities, as portfolio managers tend to put money to work in new names only when their purchase decision carries a very high degree of conviction," Morningstar says.

The firm also tracks what it calls "high-conviction" purchases, which represent fund managers' additions to already existing holdings in funds. They are of slightly less significance since "it is far easier for managers to put money to work in holdings they are already comfortable with than it is for them to make a bet on a name that is new to the portfolio," Morningstar analyst Greggory Warren wrote.

The biggest new additions by the Ultimate Stock Pickers in the first quarter, which are based on the percentage of the portfolio they represent, are an eclectic bunch, so there's no sector bet for an investor to follow. The new buys include a company that makes chemical salt for use in de-icing roadways in Compass Minerals International ( CMP), the nation's second-largest trash collector in Republic Services ( RSG), as well as one of the hottest stocks of the past decade as a harbinger of the Internet revolution in on-line retailing in Amazon ( AMZN). And, finally, the Asia-focused casino-resort builder Las Vegas Sands ( LVS) helps round out some of the managers' top new picks.

Some of the more notable "conviction buys," that is, fund managers' additions to existing portfolio positions, include Parnassus Equity Income Fund's ( PRBLX ) new purchase of snack and beverage firm Pepsi ( PEP), while the closely followed $8 billion Yacktman Fund ( YACKX) followed suit such that Pepsi was its single-largest holding at the end of March at just over 9% of the portfolio.

And in a curious move, the $8 billion Fairfax Financial Holdings ( FRFHF), a Canadian reinsurance and stock investing firm that is on the Morningstar list, bumped up its stake in the troubled BlackBerry smartphone maker Research In Motion ( RIMM) such that at the end of the first quarter, RIMM made up 19% of its portfolio.

Research In Motion has also been a favorite of the Yacktman Fund, but it is now just under 1% of the portfolio.

Among the distinguished members of the 26-member Ultimate Stock Pickers roster include: John Gunn, who manages Dodge & Cox Stock ( DODGX), and Warren Buffett's Berkshire Hathaway ( BRK.B).

Here are 10 stocks that Morningstar's "Ultimate Stock Picker" fund managers initiated positions in during the first quarter, ranked in inverse order of analysts' "buy" ratings:

10. Compass Minerals International ( CMP)

Company profile: Compass, with a market value of $2.4 billion, produces salt in North America and the U.K. for highway de-icing as well as sulfate of potash and magnesium chloride used in fertilizer.

Investor takeaway: Its shares are up 6.5% this year and have a three-year, average annual return of 14%. Analysts give its shares two "buy/hold" ratings and four "holds," and two "weak holds," according to a survey of analysts by S&P.

9. Republic Services ( RSG)

Company profile: Republic Services, with a market value of $10 billion, is the second-biggest provider of solid waste management services in the U.S., with operations in 39 states and Puerto Rico.

Dividend Yield: 3.28%

Investor takeaway: Its shares are down 2% this year but have a three-year, average annual return of 11%. Analysts give its shares four "buy" ratings, five "buy/holds," and five "holds," according to a survey of analysts by S&P.

The Oakmark Equity & Income Fund initiated a stake in the quarter. S&P has it rated "hold" on valuation concerns but says that "we still see fairly strong cash targeted mainly for share repurchases and dividends, and we expect the balance sheet to remain solid while the company maintains its above-peers return on invested capital."

8. Parker Hannifan ( PH)

Company profile: Parker Hannifan, with a market value of $13 billion, is the world's leading producer of motion and control technologies used in machinery and vehicles.

Dividend Yield: 1.94%

Investor takeaway: Its shares are up 12% this year and have a three-year, average annual return of 28%. Analysts give its shares five "buy" ratings, four "buy/holds," and eight "holds," according to a survey of analysts by S&P.

Analysts expect it will earn $7.43 per share this year and that that will grow by 10% to $8.17 per share next year.

Two of the Ultimate Stock Picker funds initiated positions in this company in the first quarter. Oakmark fund manager Bill Nygren commented in a letter to his fund's shareholders that "we think it should be valued at a much higher multiple than more cyclical companies. We are impressed with management's track record as excellent operators, and we like the way the company spends shareholder capital."

7. Applied Materials ( AMAT)

Company profile: Applied Materials, with a market value of $14 billion, is the world's largest supplier of semiconductor manufacturing equipment.

Dividend Yield: 3.42%

Investor takeaway: Its shares are at break-even this year, but have a three-year, average annual return of 2.4%. Analysts give its shares six "buy" ratings, three "buy/holds," 14 "holds," and one "weak hold," according to a survey of analysts by S&P. S&P has it rated "strong buy" based on its relatively cheap valuation and a view toward improving industry fundamentals.

6. Royal Dutch Shell PLC

Company profile: Royal Dutch Shell, with a market value of $202 billion, is one of the biggest energy companies in the world, with exploration, production and refining operations worldwide.

Dividend Yield: 4.65%

Investor takeaway: Its shares are down 12% this year but have a three-year, average annual return of positive 12%. Analysts give its shares six "buy" ratings, two "buy/holds," and six "holds," according to a survey of analysts by S&P.

The Tweedy Browne Value Fund ( TWEBX) initiated a big position in this stock.

5. Lowe's Cos. ( LOW)

Company profile: Lowe's, with a market value of $33 billion, retails building materials and supplies, lumber, hardware and appliances through more than 1,700 stores in the U.S. and Canada.

Dividend Yield: 2.06%

Investor takeaway: Its shares are up 8.4% this year and have a three-year, average annual return of 14%. Analysts give its shares nine "buy" ratings, six "buy/holds,"12 "holds," and one "weak hold," according to a survey of analysts by S&P, which itself has it rated "sell," primarily on a valuation basis.

4. eBay ( EBAY)

Company profile: eBay, with a market value of $54 billion, provides an online trading platform for buyers and sellers in nearly 40 markets of various sizes across several product categories. It is one of the world's most popular e-commerce destinations. It also owns PayPal, an online payments company.

Investor takeaway: Its shares are up 33% this year and have a three-year, average annual return of 33%. Analysts give its shares 12 "buy" ratings, seven "buy/holds," and 15 "holds," according to a survey of analysts by S&P.

One analyst cited PayPal as being integral for future growth. For fiscal 2012, analysts estimate it will earn $2.34 per share this year and that will grow by 16%, to $2.71 per share, next year. Two of the Ultimate Stock Picker funds initiated positions in this company in the first quarter and two of the funds of the high conviction list also added to their already existing positioins in eBay.

3. Las Vegas Sands ( LVS)

Company profile: Las Vegas Sands, with a market value of $40 billion, is the world's largest operator of fully integrated resorts featuring casino, hotel, entertainment, food and beverage, retail, and convention center operations. The company owns the Venetian Macau, Sands Macau, and Four Seasons Hotel Macau in China, the Marina Bay Sands resort in Singapore, and the Venetian Las Vegas and Sands Bethlehem casinos in the U.S.

2. Visa ( V)

Company profile:Visa, with a market value of $97 billion, manages a group of global payment card brands, which it licenses to financial institutions that issue cards to their customers. It acts as the payment processor.

Dividend Yield: 0.7%

Investor takeaway: Its shares are up 18% this year and have a three-year, average annual return of 23%. S&P says its prospects will improve with "a U.S. economic recovery, aided by the secular trend toward non-cash payments and strong growth prospects in emerging markets." Analysts give its shares 17 "buy" ratings, 11"buy/holds," eight "holds," and one "weak hold," according to a survey of analysts by S&P.

1. Amazon ( AMZN)

Company profile: Amazon, with a market value of $96 billion, is the highest-grossing online retailer in the world with $48.1 billion in net sales in 2011, or 7% of the $680 billion global e-commerce market.

Investor takeaway: Its shares are up 23% this year and have a three-year, average annual return of 41% and an amazing 15-year annualized return of 39%. Analysts give its shares 20 "buy" ratings, 10 "buy/holds," and 10 "holds," according to a survey of analysts by S&P.

S&P analysts say that "long term, we expect Amazon's initiatives will result in continued strong sales results and significant margin expansion, as it leverages its leading brand name and position as an Internet retailer. We consider Amazon a best-in-class retailer that generates significant free cash flow."

Dividend Yield: 2.09%

Investor takeaway: Its shares are up 13% this year and have a three-year, average annual return of 5%. Analysts give its shares 14 "buy" ratings, 11 "buy/holds," and three "holds," according to a survey of analysts by S&P.
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