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Bob Goldfarb is a value investor who manages the $5 Billion Sequoia Fund (SEQUX). Morningstar named Goldfarb the best fund manager for 2010. The Sequoia fund has a top-tier long-term performance rating, ranking in the top 5% over the past 3, 5, 10, and 15 year periods.

Goldfarb, along with his value investing peers, is a professional investor known for his exhaustive research. He and his team of analysts leverage their broad networks to conduct interviews with management teams, sell-side analysts, and other industry contacts. Additionally, they attend industry conferences and purchase unique industry data to test and validate their investment theses.

Why do we study Goldfarb's fund holdings? In his biography of Warren Buffett, Robert Miles notes:

Study the best to be the best. The best do one thing well and focus all of their life's energy doing that one thing.

Study Goldfarb's holdings, and select the more surprising picks for further analysis.

Let's examine the output of Goldfarb's intensive research to get a sense for his best ideas. Are any of these securities promising to you? In the table below, we highlight the companies with low P/E or double-digit earnings growth.

TICKER

COMPANY NAME

% Assets

P/E

LTG

Dividend Yield (%)

VRX

Valeant Pharmaceuticals International Inc

10.2%

197

15%

BRK.A

Berkshire Hathaway Inc A

8.5%

16

7%

TJX

TJX Companies

6.9%

18

12%

1.2

FAST

Fastenal Company

5.6%

37

17%

1.6

IDXX

Idexx Laboratories

3.7%

28

15%

PCP

Precision Castparts Corp.

3.6%

22

15%

0.1

AAP

Advance Auto Parts Inc

3.5%

15

13%

0.4

MHK

Mohawk Industries, Inc.

2.8%

21

19%

ORLY

O'Reilly Automotive Inc

2.7%

23

17%

MA

MasterCard Incorporated A

2.3%

21

20%

0.2

IBM

International Business Machines Corp

2.0%

15

11%

GOOG

Google, Inc.

2.0%

20

19%

BRK.B

Berkshire Hathaway Inc B

2.0%

16

7%

TGT

Target Corp

1.8%

12

11%

2.1

PRGO

Perrigo Company

1.3%

27

13%

WMT

Wal-Mart Stores Inc

1.2%

12

10%

2.5

PX

Praxair, Inc.

1.0%

23

13%

1.9

GS

The Goldman Sachs Group Inc

1.0%

15

9%

1.5

GLW

Corning Inc

0.9%

6

11%

OMC

Omnicom Group, Inc.

0.8%

14

10%

2.3

DHR

Danaher Corporation

0.8%

16

18%

RBA

Ritchie Bros. Auctioneers, Inc.

0.8%

34

20%

2.2

Accounting data sourced from Yahoo Finance

Two of the fund's buys, Berkshire Hathaway and Valeant Pharmaceuticals, are high conviction investments that comprise more than 10% of the portfolio. Other top picks include TJX Companies, Fastenal, and Precision Castparts.

On the surface, Valeant Pharmaceuticals and Idexx Laboratories are two very curious, if unexpected, buys for a value investor. Value investors generally tend to purchase companies with more predictable earnings streams and long-term competitive advantages. Pharmaceuticals require large upfront cash investments during the research phase for an uncertain stream of cashflows. I will highlight the value case for these stocks in a follow-up article.

The other interesting attribute of this portfolio is its emphasis on growth- most of the securities are double-digit growers, with low valuation multiples, and good dividend yields. Some of these names, such as Precision Cast Parts, Ritchie Brothers, and Mastercard, would fit growth manager Bill Danoff's portfolio criteria. This portfolio is a great illustration that value, growth, and income investment styles are not mutually exclusive. It is clear that Goldfarb seeks an interesting balance of components of total return - earnings growth, multiple expansion, and dividend yield - when selecting his securities.

These stock ideas should be used to identify potential candidates for your portfolio. Remember to perform your own due diligence before purchasing or selling any security for your portfolio.

Source: 21 Value Stocks Fund Manager Bob Goldfarb Is Buying