Money & Investing
To Discover Leading Stocks, Check for a Fund's Fingerprints -- A Look at Baidu, Ulta Salon Cosmetics and Ivanhoe
In today's world of detective work, law enforcement people use all kinds of advanced technology to nail the bad guys. For years, they have used fingerprint checks aided by sophisticated computer screening and, more recently, genetic DNA sample analysis.
In a way, investors can do the same kind of "detective work" when searching for a potential winning stock.
One way is to check a stock for the "fingerprint" of a leading mutual fund that may be:
1. Holding a large position in the stock
2. Adding significantly to its stock holding
3. Initiating a significant new position
Mutual funds make up a large part of the buying and selling that goes on in stocks. They handle billions of dollars. Some mutual funds are average, some are good, and some are very good.
Of course, services are available on the Internet that rate mutual funds, such as Morningstar. Also, many brokerage firm websites have information on mutual funds. You should become familiar with some of the best performing large funds. These are the funds that bought the current top-performing stocks and could come back again to build up their positions.
As a general guide, you can use that information in two ways.
You can check the individual stock holdings of those funds to see where you are putting your money, or you can select your own stock through your own research and then double-check to see if any of the top funds have a position.
It is true that the information on the funds is dated somewhat, but it can be helpful, nevertheless. Also, every bull market cycle tends to produce new top-performing funds.
In our research of leading stocks over the past several months, one mutual fund that seems to keep popping up with a holding in strong acting stocks is the Fidelity Contrafund (FCNTX). The fund has 79.1 billion dollars in assets that are spread over 484 stocks at last count. It has a 5-star rating from
Morningstar -- the highest possible rating.
Of course, there are other mutual funds that are top notch, too. However, we want to focus on just one Fidelity Contrafund as an example.
Fidelity Contrafund's largest two holdings are two of the strongest stocks in the market the past several years. They are Apple, Inc. (AAPL), with 7.2 percent of the portfolio and Google, Inc. (GOOG), with 5 percent of the portfolio. The latest data shows Fidelity Contrafund sold a little of its Apple stake and held its Google position steady.
Of course, what is interesting is that Fidelity Contrafund's fingerprints are showing up on certain other stocks that are now acting strong and some that are not well known but may have good prospects.
Perhaps one of the strongest stocks in the stock market the past few years is Baidu Inc. (BIDU), the Chinese Internet firm. The company is a search provider with some 220,000 advertisers. Earnings should remain strong. This year, analysts look for a 63 percent jump in net income and next year a 46 percent gain.
The stock has had a sensational run. It went public in 2005 and traded around 8 dollars, adjusted for a 10-for-1 stock split. It is now at 137. You would think the run might be over, but interestingly, Fidelity Contrafund boosted its stake in Baidu by purchasing 400,400 shares recently.
So, it would appear, from Fidelity Contrafund's viewpoint, that Baidu is still a good-looking stock even though, on a chart, it may look very extended in price.
Another hot stock on the move is Ulta Salon Cosmetics and Fragrances, Inc. (ULTA). Its stock has soared from 5 back in 2009 to 48. The company operates beauty salon stores that provide cosmetic services and products. Some analysts see the company as vulnerable to stiff competition from department stores and specialty stores. However, some ladies we have spoken to love the stores.
So does Fidelity Contrafund, apparently. It is the largest fund holder with a 2.3 percent stake. Although Ulta's stock has had a big run, Fidelity Contrafund was a recent buyer of 174,324 shares.
Analysts project that Ulta's net for the fiscal year ending January 2012 will climb 30 percent to 1.51 a share from 1.16 in fiscal 2011. The company has annual sales of 1.5 billion dollars. The latest data shows that Ulta's same store sales are growing at 9.5 percent.
Interestingly, Wells Fargo Advantage Growth Fund, 5-star rated, is the second largest fund holder of Ulta, with a 2.4 percent stake.
It is always interesting when a top fund like Fidelity Contrafund buys a stake in a stock that would seem to be a laggard. One of them is AGCO Corp. (AGCO), a producer of farm equipment such as tractors, hay tools and forage equipment. It has annual sales of 6.9 billion dollars.
AGCO's stock has been all over the map. It soared from 19 in 2005 to a peak of 71 in 2007. Then, it tumbled down to 14 in 2009 during the bear market. It is now in an up trend and trading at 54. This year, analysts forecast a 29 percent gain in net. For the first quarter, profits are expected to soar 237 percent.
Finally, a surprising issue to find Fidelity Contrafund into is Ivanhoe Mines Ltd. (IVN), a small producer of copper, gold and iron ore. Its principle property is the Oyu Tolgoi copper and gold mine project in southern Mongolia.
The firm has sales of approximately 80 million dollars. This year, analysts expect Ivanhoe to show a loss of 9 cents a share compared with a loss of 10 cents a year ago.
Interestingly, Fidelity Contrafund is the largest fund holder in Ivanhoe, with a 4.5 percent stake. It was a recent buyer of 204,900 shares. It now has 23.5 million shares of 653 million shares outstanding.
Ivanhoe's stock has climbed from a low of 1.55 in late 2008 to 27.46. It is one of the hottest stocks in the market. The speculative side of the stock is the possibility of a takeover. Right now, Rio Tinto has the right to buy a 49 percent stake in Ivanhoe.
Also, Ivanhoe's CEO is Robert Friedland, who has a history of selling mining firms for a very high price. Back in the 1990s, Friedland engineered the sale of Voisey Bay, Canada, for 4.3 billion dollars.
Mr. Fasciocco is the publisher of Ticker Tape Digest at www.tickertapedigest.com. He is a contributing writer for several publications. Mr. Fasciocco can be reached at leo@tickertapedigest.com.
