With the market up more than 50% from its March lows,
bargains aren't nearly as plentiful these days as they were,
say, this time last year. As a result, I'm treading
cautiously, putting new money to work mainly via the Fool's
401(k) plan through which I own (and continue to invest in)
Dodge & Cox International Stock (DODFX),
a globetrotting fund whose storied management team has staked
out sizeable positions in
Novartis (NYSE: NVS) and
Nokia (NYSE: NOK).
The value hounds over at
Fairholme (FAIRX) also get a chunk of my
biweekly change. As of that fund's most recently reported
portfolio, manager Bruce Berkowitz and his team have taken a
shine to
Pfizer (NYSE: PFE), which soaks up a 14.3%
slice. For a "retail" mutual fund, that's just a massive
position -- an indication of the way in which Berkowitz -- a
real-deal, Buffett-esque luminary -- has the courage of his
convictions.
A 40% allocation to the health-care sector provides
further evidence of Fairholme's best-ideas investment
approach. Insurers
WellPoint ,
WellCare Health Plans , and
UnitedHealth (NYSE: UNH), for example, appear
among a portfolio that sports just 20 equity positions.
Thematically correct
The through lines between these two funds and my own
current approach to purchasing individual stocks is this: a
focus on high-quality companies trading, even amid the
market's fast and furious run-up, with very attractive
valuation profiles relative to their (a) rock-solid financial
health; and (b) robust prospects.
Pfizer, for example, sports a price-to-earnings ratio
below that of its typical pharmaceutical rival (and its own
five-year average as well) despite delivering more than $16.5
billion in free cash flow last year -- a massive increase
relative to the company's showing in fiscal 2007. Novartis
looks cheap, too, checking in with a below-market P/E that,
as I read it, dramatically overstates the company's
health-care reform and pipeline risk while failing to account
(pretty much at all) for its bulletproof balance sheet. Come
what may in the near term, at its current price, Novartis is
positioned as a long-haul overachiever.
UnitedHealth and Nokia are similarly attractive, but as
pleased as I am to own them indirectly (i.e., through the
mutual funds I hold), they're not in the individual stock
sleeve of my personal portfolio. In fact, with the exception
of UnitedHealth, they're not even on my watch list. (Check my
case for
UnitedHealth here.)
Three for the road
Instead, I've got my eye on three-of-a-kind, proverbial
dollar bills that, just now, the market appears to be selling
for roughly fifty cents:
Paychex (Nasdaq: PAYX),
Medtronic (NYSE: MDT), and
Costco Wholesale (Nasdaq: COST).
According to my back-of-the-envelope calculations, the
individual investment cases for the members of this power
trio add up to a wash: At their current prices, each trades
at a steep discount to intrinsic value and earnings-growth
potential. All are financially very healthy, and each boasts
management teams with significant skin in the game, too. That
is, their corporate honchos are your fellow investors,
too. Continued... |