8 Growth at a Reasonable Price Picks From the Vanguard PRIMECAP Fund

 |  Includes: AMGN, BA, LLY, MDT, MMC, NVS, ORCL, POT
by: MyPlanIQ

Vanguard PRIMECAP fund (VPCCX) is one of a few actively managed funds offered by index fund giant Vanguard. The fund's lead manager Joel Fried has been with the fund since 1986. Its investment style can be summarized as GAARP (Growth At A Reasonable Price), or the so called picking of 'value stocks' among high quality growth stocks.

Here are the top 8 stocks the fund held on 6/30/2011. Since the fund has extremely low turnover (7% annually), these stocks very likely still remain in the fund holdings:

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Company Symbol % Assets
Amgen Inc. AMGN 4.02
Marsh & McLennan Companies, Inc MMC 2.74
Novartis NVS 2.72
Eli Lilly and Company Common St LLY 2.45
Potash POT 2.3
Oracle ORCL 2.28
Boeing BA 2.11
Medtronic MDT 2.06
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3 out of these 8 stocks are drug or biotech stocks: Amgen, Novartis and Lilly. These companies have had very stable cash flow recently. Medical device company Medtronic (NYSE:MDT) is a dominant supplier in implantable devices including pacemakers, defibrillators, heart valves, stents, insulin pumps, and spinal fixation devices. The company has consistently delivered close to 20% return on equity in each of the past 10 years.

The following are some key ratios for these stocks:

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Averages VPCCX Russell 1000 Growth
Price/Earnings 14.82 15.7
Price/Book 2.61 3.6
Price/Sales 1.43 1.7
Price/Cashflow 8.1 10.1
Sales Growth % 8.4% 5.4%
Cash Flow Growth % 14% 8.3%
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One can see that the stocks are cheap relative to large growth stocks. However, these stocks have higher sales and cash flow growth.

The performance of these stocks is very reasonable, even compared with two diversified ETF portfolios:

Portfolio Performance Comparison

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Portfolio/Fund Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
VPCCX 14% 179% 2% 24% 4% 23%
Retirement Income ETFs Strategic Asset Allocation Risk Profile 0 10% 43% 4% 9% 4% 9%
Retirement Income ETFs Tactical Asset Allocation Risk Profile 0 14% 71% 15% 71% 14% 64%
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Three Year Chart

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Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.