Low Prices and Value Credentials

06/25/2015 9:00 am EST


Genia Turanova

Editor, Leeb Income Performance

Our latest featured mutual fund recommendation offers an excellent way to invest in a diversified collection of relatively small stocks—market caps between $2 billion and $10 billion—with value credentials, asserts Genia Turanova in The Complete Investor.

Fidelity Low-Priced Stock Fund (FLPSX) is a one-time mid-blend fund recently reclassified as a mid-cap value fund.

To assess value, the fund considers P/Es, price to book, and dividend yields, among other metrics. It looks for companies that at the time of purchase trade at $35 or less per share.

Compared to its peers, Fidelity Low-Priced Stock fund, as of the latest quarter, is significantly overweighted in consumer discretionary and consumer staples, reflecting its focus on companies with strong brands and that benefit from recurring consumer purchases.

The biggest underweighting is in financials, especially banks and real estate investment trusts, which the fund’s managers deem overvalued and vulnerable to regulatory pressures.

Recently, the fund has turned its value antennae to the hard-hit energy sector, anticipating opportunities among stocks suffering from the drop in oil prices.

Its reasoning: as US rigs are shuttered, supplies will tighten and oil prices will rise, leading to big gains among undervalued energy companies with enough financial strength to survive the downturn. (The fund is now equal-weighted in energy compared to its peers.) The fund also has been buying small-cap Japanese companies.

Despite the fund’s nearly $46 billion in assets, the average market cap of its holdings is below average for the category. That mainly reflects its large number of positions—around 920—only a quarter of which are concentrated in the top 10 holdings.

Further diversification comes via its hefty international representation: just 55% of total assets are in US companies, while 34% are international (27% in developed countries, 7% in emerging countries). The remaining 11% of assets is currently in cash.

The long-term record is outstanding: over the past 10-year period, Fidelity Low-Priced Stock fund ranks in the top 12th percentile of its category.

It’s in the top 23rd percentile for the past five years, top 52nd percentile for the past three, and top 22nd for the past year. Turnover is low. Fidelity Low-Priced Stock fund remains a buy.

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