10 Most Popular Stocks Among Top Mutual Fund Managers

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 |  Includes: BRK.B, COP, JNJ, KO, MSFT, PEP, PG, WFC, WMT, XOM
by: Insider Monkey

Morningstar, one of the most famous fund-ratings firms, tracked a bunch of mutual funds and listed top 10 stocks held by the most successful stock-pickers. The 10 stocks are Microsoft (NASDAQ:MSFT), Johnson & Johnson (NYSE:JNJ), Exxon Mobil (NYSE:XOM), Wells Fargo (NYSE:WFC), Wal-Mart (NYSE:WMT), Procter & Gamble (NYSE:PG), Berkshire Hathaway (NYSE:BRK.B), Coca-Cola (NYSE:KO), Pepsi (NYSE:PEP), ConocoPhillips (NYSE:COP).

Morningstar listed these stocks based on the buying activity of the top mutual fund managers. Morningstar believes mutual funds managers still tend to stick with “the names they already know when they have capital to put to work.” However, some of the “Ultimate Stock-Pickers” have already moved into new stocks during the quarter.

We will take a deeper look, based on hedge funds’ positions, to have a more comprehensive judgment on these 10 stocks. Here is the list of these 10 stocks recommended by Morningstar.

Stock

Ticker

No. of hedge funds

Microsoft

MSFT

93

Johnson & Johnson

JNJ

59

Exxon Mobil

XOM

46

Wells Fargo

WFC

82

Wal-Mart

WMT

42

Procter & Gamble

PG

38

Berkshire Hathaway

BRK-B

42

Coca-Cola

KO

43

Pepsi

PEP

39

ConocoPhillips

COP

35

Click to enlarge

Microsoft: MSFT has a mixed path in 2011. The stock lost 5% year to date. MSFT is traded at a forward P/E of 9.36 and its EPS is expected to grow 11.08% in the next five years. MSFT is also one of the most popular stocks among hedge funds (see the 10 most popular stocks). 93 hedge funds we track invested in the stock in the third quarter. Boykin Curry’s Eagle Capital Management was MSFT’s largest hedge fund stakeholder at the end of September, with 19.88 million shares. Other famous hedge funds such as Jim Simons’ Renaissance Technologies, Cliff Asness’ AQR Capital Management, David E. Shaw’s D. E. Shaw all had several million shares of MSFT in their portfolio.

Johnson & Johnson: JNJ has returned 8% so far in 2011. JNJ might be a good stock for mutual fund managers or people who want to hedge against the inflation, since the stock has a low beta of 0.55 and a high dividend yield of 3.60%. The stock doesn’t have a high growth potential because of its 6% expected EPS growth rate. As such, it’s not a good choice for younger people who want long-term capital gains. JNJ is also a hedge fund-loved stock in this list. The stock was owned by 59 hedge funds during the third quarter. The largest stakeholder was Warren Buffett’s Berkshire Hathaway, which took 37.44 million shares at the end of September, as the Q3 filing shows.

Exxon Mobil: In August, XOM was hammered by the European debt crisis and lost nearly 20% within two weeks. Recently the stock recovered from the downturn and gained 14% year to date. The stock has a 4.6% expected EPS growth rate, which is the lowest among the 10 stocks. The stock’s forward P/E of 9.52 is slightly higher than its peers’. Forty six hedge funds retained XOM in their portfolios before October, while quite a few hedge funds decreased their positions. XOM’s largest fund investor was Ken Fisher, who had 7.15 million shares in the stock.

Wells Fargo: WFC is one of the country's largest banks, with $1.3 trillion in its assets. The stock lost 11% year to date, better than other mega cap banks. The stock has a beta of 2.00, and a high EPS growth rate as well as a low dividend yield, so it might be a good choice for risk seekers. Many hedge funds love WFC. Nearly one fifth of the hedge funds in our tracking list invested in WFC at the end of third quarter. John Paulson had 23.85 million shares in WFC at the end of the third quarter.

Wal-Mart: WMT has earned 11% so far in 2011. The stock is trading at a 13.03 forward P/E, and its EPS is expected to grow at 11% in the next five years. It has a beta of 0.46. Forty two hedge funds invested in WMT in the third quarter. The largest stakeholder was Warren Buffett, who had more than 39 million shares in the stock.

Procter & Gamble: PG is almost breaking even in 2011. The stock has a forward P/E of 15.34 and an expected EPS growth rate of 9%. The stock has a beta of 0.50. Thirty eight hedge funds had PG in their portfolios in the third quarter. Warren Buffett had 76.77 million shares in the stock.

Berkshire Hathaway: Berkshire Hathaway is a holding company which operates a range of subsidiaries. BRK.B has slightly lost 2% in 2011. It has a forward P/E of 17.78 and a beta of 0.55. There were forty two hedge funds invested in BRK-B at the end of third quarter. Bruce Berkowitz’s Fairholme (FAIRX) had the most, with 73.94 million shares in the stock.

Coca-Cola: KO has returned 6% this year. It has a 17.66 forward P/E and a 9% expected EPS growth rate. The stock has a low risk level with a beta of 0.49. Forty three hedge funds invested in the stock.

Pepsi: PEP is trading at a forward P/E of 14.82, and is expected grow at 8% in EPS. Overall, PEP is even conservative than KO, because it has the lowest beta here and has a higher dividend yield. PEP was in thirty nine hedge funds in the third quarter. Boykin Curry’s Eagle Capital Management took the largest chunk with 5.46 million shares.

ConocoPhillips: COP gained 10% year to date. The stock has a forward P/E of 8.23 and an expected EPS growth rate of 7.02%. This is a dividend stock which pays 3.60% dividend yield. COP was in thirty five hedge funds’ portfolio in the third quarter, and it’s also one of Warren Buffett’s stock picks. Buffett’s Berkshire Hathaway controlled 29.10 million COP shares at the end of September.

Overall, mutual fund managers seem to be imitating Warren Buffett’s stock picks. There is moderate interest in these stocks among hedge funds as well. Hedge funds are most bullish about Microsoft and Wells Fargo. Warren Buffett doesn’t have MSFT in his portfolio, but recently revealed that he would have bought it if he wasn’t friends with Bill Gates.

Disclosure: I am long MSFT, COP.