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  • Home>Research & Insights>Investments a la Carte>Four Picks for the Present

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    Four Picks for the Present

    Four offerings deemed to be right for right now.

    Morningstar, 11/30/2011

    Stock: 3M MMM
    Fair Value Estimate: $100
    Morningstar Rating: 5 Stars 
    Uncertainty: Low 
    Economic Moat: Wide 
    Credit Rating: AA

    3M has invented some of the world’s greatest products. We think that the firm’s innovative culture, bottom-line focus, and low-cost manufacturing have carved a wide moat around its business that will enable the company to reap outsized rewards over the long run. Although 3M sells thousands of products to disparate end markets, the firm cites only a few dozen technological pillars that support its wide array of offerings. Recent economic headwinds challenged this profitability because of the firm’s inherent operating leverage, but we think 3M handled the 2008–09 recession admirably, reducing working capital to increase free cash flow while remaining economically profitable.
    Adam Fleck

    Mutual Fund: Litman Gregory Masters Value MSVFX
    Category: Large Blend
    Morningstar Rating: 3 Stars 
    Total Assets:  $86.8 million
    Expenses: 1.37%  
    Turnover: 8.8%

    This fund’s portfolio comprises the nine to 15 best ideas of four proven subadvisors. That should have been a winning formula, particularly with Bill Nygren of Oakmark Select OAKLX, Mason Hawkins of Longleaf Partners LLPFX, and a team from Mutual Series on board since the fund’s 2000 inception. However, the struggles of the fourth manager, Bill Miller of Legg Mason, in 2007 and 2008 put a big dent in the fund’s record. Miller was canned in 2008 in favor of Clyde McGregor of Oakmark Equity & Income OAKBX. At the time, the fund had lagged the Russell 3000 Value Index since inception. Since then, it’s trounced the index as well as its typical large-value peer. The fund is a fine long-term holding.
    Greg Carlson

    Separate Account: Leuthold Weeden Core Investments
    Category: Moderate Allocation
    Total Number of Holdings: 61 
    P/B Ratio: 1.98 
    U.S. Stocks: 65.64%  
    Net Assets: $1.771 billion
    Assets in Top 10 Holdings: 39.55%

    Economic growth is muted in the biggest markets, and smaller corners of the market could end up delivering better returns, so a wide-ranging asset-allocation strategy may be just the ticket. Leuthold Weeden runs one of the best around. It has generated fine long-term returns while owning U.S. equities and bonds, emerging-markets stocks, foreign sovereign debt, gold bullion, and cash. The fund will also dramatically alter its stock/bond mix depending on the macroeconomic forecasts of the management team and its quant models. Firm founder Steve Leuthold recently stepped down from his CIO and portfolio-manager roles, but he’ll still be quite involved in the investment process.
    Greg Carlson

    Exchange-Traded Fund: WisdomTree Asia Local Debt ALD
    Category: Emerging-Markets Bond
    Expense Ratio: 0.55% 
    AUM: $417 million
    SEC yield: 2.43%  
    Effective duration: 2.75 years
    Average credit quality: BBB

    WisdomTree Asia Local Debt invests primarily in local currency government bonds of 12 Asian countries, excluding Japan but including Australia. The fund is suitable as a satellite holding for investors looking for exposure to potentially appreciating Asian currencies. One risk to note is that while most Asian currencies have strong fundamentals, foreign fund flows, especially during periods of high market volatility, can drive fluctuating exchange rates. This ETF does not follow a strict benchmark and can be considered active because managers have some discretion to pick countries and securities for inclusion. The country-selection process is based on the depth and liquidity of the markets and also incorporates political and economic factors.
    Patricia Oey

    Hindsight: October/November 2010
    The picks from one year ago include no big winners or losers, as befits a market environment characterized by very modest returns. Stock pick Home Depot HD gained 7% for the period compared with 1% for the S&P 500; moves to focus on its core retail business have begun to bear fruit. Meanwhile, ETF pick Vanguard Information Technology VGT finished slightly ahead of the index with a 3% gain as successes like Apple AAPL have out-weighed disappointments like Hewlett- Packard HPQ. Separate account pick Westwood Capital Management Balanced Portfolio has lagged the Morningstar Moderate Target Risk Index by a narrow margin because of its focus on the largest companies. Finally, mutual fund pick Templeton Global Total Return TGTRX trailed its benchmark, the Barclays Capital Multiverse Index, by 5 percentage points as its currency bets fell flat when the markets tanked in August and September.

    Greg Carlson

    Pick: Home Depot HD 
    Type: Stock
    Cumulative Return to Date (%): 6.82 
    Back Then, We Said: “Upgrades will strengthen its competitive position”
    Now, We Say: “Should continue to improve its supply chain”

    Pick: Templeton Global Total Return A TGTRX
    Type: Mutual Fund
    Cumulative Return to Date (%): -1.17  
    Back Then, We Said: “Proven manager with more levers to pull”
    Now, We Say: “Should succeed, but it’s only for patient investors”

    Pick: Vanguard Information Technology ETF VGT
    Type: ETF
    Cumulative Return to Date (%): 2.67
    Back Then, We Said: “Offers broad exposure to the undervalued tech sector”
    Now, We Say: “Monitor valuation in this intensely competitive sector”