Hi, I’m Susan Dziubinski with Morningstar. When it comes to investing, ideas can come from many different places. To uncover a few good investing ideas today, we’re turning to the holdings of some concentrated fund managers that Morningstar thinks highly of.
Why focus on concentrated funds? Concentrated fund managers invest in fewer stocks — usually between 20 and 50–and are therefore choosier about what they buy. And when they buy, they typically have high conviction in their purchases. The concentrated funds we looked at all earn high Morningstar Analyst Ratings. They 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).
Despite the fact that these managers practice very different strategies, their portfolios have several holdings in common. Today we’re taking a look at three undervalued stocks that are the most widely held among these funds.
3 Undervalued Stocks Top Managers Like
Some well-respected fund managers with different strategies picked these same stocks for their concentrated funds.
- Alphabet (GOOG) (GOOGL)
- Booking Holdings (BKNG)
- Microsoft (MSFT)
Every fund on our list owns Alphabet. Google’s share of the global search market tops 80%, making it by far the most dominant player in search. Google has generated strong revenue growth and cash flow, and we expect it to continue to do so. Alphabet also owns YouTube, which we think will begin to contribute more to the company’s top and bottom lines. We think Alphabet has significant competitive advantages and is run by a strong management team. Shares look undervalued to us today.
Four of the concentrated funds own Booking Holdings, which is the world’s largest online travel agency by revenue. COVID-19 and inflation remain headwinds over the short term, but we believe Booking is financially healthy, and we expect its global leadership position to increase over the next decade as the company expands into vacation rentals, restaurant bookings, experiences, flights, and payments . And although big names like Amazon and Google might become competitors to some of Booking’s business, we think they’re unlikely to replicate Booking’s network and model. Shares look undervalued according to our metrics.
And lastly, four funds also own Microsoft. Microsoft has transformed itself into a leader in the cloud. The company has transitioned from a traditional perpetual license model to a subscription model, ditched its mobile handset business, and moved gaming to the cloud. As a result, Microsoft today is a focused company with impressive revenue growth and high and expanding margins. Here, too, shares are undervalued.
Senior analysts Ali Mogharabi, Dan Romanoff, and Dan Wasiolek contributed the research behind this video.
Susan Dziubinski shares more stock ideas in 3 Solid Stock Picks for an Unsteady Market.