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TheStreet

10 U.S. stock picks of the highest-rated money managers Add to ...

Some of the best investment managers have made Devon Energy one of their top picks, by either initiating or significantly increasing their stakes in the oil and gas exploration and production firm.

This came to light as part of Morningstar's tracking of the stock picks of 26 of its highest-rated funds for its Ultimate Stock Pickers series.

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The fund-rating firm sifts through the 26 funds' quarterly reports for their top new buys and for particularly significant increases in existing holdings quarterly.

Devon Energy popped up in both categories in the second quarter, when five of the 26 funds made "high conviction" purchases, which represent fund managers' additions to already existing holdings in their funds in the same stock during any single period, or new stakes. Three funds initiated positions in the stock in the period, while two bumped up their stakes.

"It is rare to see five of our Ultimate Stock Pickers making high-conviction purchases and the fact that three of the managers that were buying were building new positions in the name is, in our view, an indication of strong conviction behind the name," said Brett Horn, a Morningstar associate director, in a report.

That means seven of Ultimate Stock Pickers funds now hold the stock, he added.

This came in the second quarter, a period when world oil prices fell by 20 per cent, "impacting the stock prices of just about every firm in the (oil and gas) sector," said the report. "So it wasn't as though there weren't plenty of buying opportunities to be had during the period, making the purchase of Devon stand out even more."

The Oakmark fund's Oakmark Equity & Income and Oakmark initiated new, sizable positions in Devon Energy, committing 1.7 per cent and 1.4 per cent of their portfolios, respectively, Morningstar said.

Oakmark's famed investment manager, William Nygren, told his firm's investors in a note explaining the choice that 80 per cent of Devon's revenue and value stem from its oil and oil liquids business, and not from the natural gas that many investors are focused on. "Based on our estimates, the stock is now trading at just over half of its 2013 asset value," he said. "And we are not assuming any oil price recovery in our numbers."

But Devon, now trading at $61.19 (U.S.), is down 4 per cent over the past three months and 2.3 per cent on the year.

Another notable buy on the part of the investment managers is Thermo Fisher Scientific, a manufacturer of sophisticated medical and industrial laboratory equipment. RS Capital Appreciation initiated a high-conviction stake in the second quarter while FPA Crescent boosted its existing allocation by 40 per cent in the period.

"The managers at RS Capital Appreciation were attracted by the company's global reach, wide product portfolio, and what they see as a value-creative growth strategy at the firm," the Morningstar report said.

Top funds are also showing increasing interest in Bruce Berkowitz's Fairholme fund's pet project, the insurer American International Group. Two new funds initiated stakes in the company in the second quarter.

A couple of other off-the-beaten-path stock selections by the funds include purchases of the international freight forwarder Expeditors International of Washington and a substantial new position by a fund in Life Technologies, one of the largest intellectual property owners in the life sciences industry.

As a reference, the S&P 500 is up 14 per cent this year after losing 2.75 per cent in the second quarter.

Here are 10 stocks that Morningstar's "Ultimate Stock Picker" fund managers made significant purchases of during the second quarter, ranked in inverse order of analysts' "buy" ratings:

10. Expeditors International of Washington

Company profile: Expeditors, with a market value of $8-billion, is an international air and ocean freight forwarder and customs broker.

Dividend yield: 1.38 per cent

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