Fidelity Low-Priced Stock: A Good Eye for Bargains
Legendary manager Joel Tillinghast finds plenty of solid stocks for $35 per share or less.
When it debuted back in 1989, Fidelity Low-Priced Stock (FLPSX) invested mostly in small-company stocks trading at $15 per share or less. Had you invested then, you'd scarcely recognize today's portfolio, which has 40% of assets in midsize companies and another 34% in large firms. You'd have also enjoyed an average annualized return of 13.8%–four percentage points better than Standard & Poor's 500-stock index.
Manager Joel Tillinghast, who has helmed the fund since its inception, has stuck to the same basic stock-picking formula, although the price tags for the stocks he shops for are a bit higher today. To be considered for the portfolio, a stock must now trade at $35 or less at the time of purchase or boast a price-earnings ratio less than that of the median stock in the small-company Russell 2000 index, which is still the fund's benchmark. Beyond that, Tillinghast and his team (six comanagers oversee a small portion of the fund) hunt for fast-growing firms trading cheaply compared with their "intrinsic value," which Tillinghast and company determine by analyzing the strength of a firm's balance sheet, the stability of its revenues and its competitiveness within its industry.
The fund holds 950 stocks; the top holdings represent the stocks the managers like most and those with the largest market capitalizations. The fund's size ($37.4 billion in assets at last check) generally prevents it from taking large positions in smaller firms. Many of the fund's holdings represent less than 0.1% of total assets.
Funds with a glut of assets and an expansive portfolio tend to mirror their benchmarks, but Tillinghast separates Low-Priced Stock from its bogey and its peers by looking for values overseas. The fund allocates 41% of assets to foreign stocks, compared with 3% for the average value-oriented mid-cap fund and less than 1% for the Russell 2000. The fund has 10% of assets invested in small Japanese firms, which Tillinghast says trade at reasonable prices, with stronger balance sheets than comparable firms in the rest of the developed world. If value-investing guru Benjamin Graham were alive today, Tillinghast says, "he'd be learning Japanese."