It never hurts to look at what top investors are doing to see if you might want to replicate their strategy, whether it’s Warren Buffett, Bill Miller or John Rogers.
Morningstar took a gander at seven concentrated mutual funds with different strategies whose managers it respects. Then it chose three stocks it considers undervalued that are held by at least four of the funds.
Concentrated funds are those that hold about 20-50 stocks, making them “choosier about what they buy,” writes Susan Dziubinski, director of content for Morningstar.com.
The seven funds are:
· FMI Large Cap (FMIHX),
· Loomis Sayles Growth (LGRNX),
· Parnassus Core Equity (PRBLX),
· AMG Yacktman Focused (YAFFX),
· Jensen Quality Growth (JENSX),
· Oakmark Select (OAKLX), and
· Sound Shore (SSHVX).
The three stocks are:
1. Alphabet (GOOG), held by all seven funds;
2. Booking Holdings (BKNG), the online travel agency conglomerate, held by four of the funds; and
3. Microsoft (MSFT), also held by four of the funds.
Morningstar’s Take on Alphabet
Morningstar analyst Ali Mogharabi assigns the company a wide moat and puts fair value for the stock at $169. It recently traded at $116.
“While Alphabet’s second-quarter results missed consensus estimates, we found the firm’s search advertising and cloud numbers encouraging,” he wrote in a July commentary.
“Google’s diversified advertising offerings appear to be partially offsetting uncertainties in the macro environment, while digital transformation to cloud remains on top of many businesses’ priority list.”
Still, “we have slightly lowered our short- and medium-term expectations given the ongoing economic and geopolitical challenges,” pulling his fair-value estimate down from $180, Mogharabi said.
Morningstar’s Take on Booking Holdings
Morningstar analyst Dan Wasiolek gives the company a narrow moat and puts fair value for the stock at $3,000. It recently traded at $1,933.
“We see Booking exhibiting solid financial health,” he wrote in a commentary. “Further, we expect Booking's global online travel agency leadership position to increase over the next decade.”
That will be driven by “a healthy position in Asia-Pacific, continued leadership in Europe, and an expanding presence in vacation rentals, restaurant bookings, experiences, flights, and payments,” Wasiolek said. All of that is “backed by leading marketing and technology scale.”
Morningstar’s Take on Microsoft
Morningstar analyst Dan Romanoff assigns the company a wide moat and puts fair value for the stock at $352. It recently traded at $280.
Despite Microsoft’s weaker-than-expected results for the latest quarter, “we believe that its fundamentals remain sound,” he wrote in a commentary.
“The company's performance was hurt mainly by things beyond its control, such as a stronger dollar, persistent supply chain issues, further scaling back in Russia, and general macroeconomic pressures.”
On the plus side, “we are encouraged by several pockets of strength, such as Azure, the continued migration to Office E5, and traction with the Power platform,” Romanoff said.
