Overreaction at Fidelity Low-Priced Stock

10/05/2017 5:00 am EST

Focus: FUNDS

Jack Adamo

Editor, Jack Adamo's Insiders Plus

The Fidelity Low-Priced Stock Fund (FLPSX), has returned 13.8% a year (compounded) since it launched in 1989. That compares with 9.6% for its benchmark, the Russell 2000 index, and 9.7% for the Standard & Poor’s 500, observes Jack Adamo, editor of Insiders Plus.


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Its stellar performance has not let up. In the second quarter, the fund—managed by Joel Tillinghast—again beat the S&P and Russell indices soundly.

Tillinghast did an interview on Bloomberg last Thursday during which he complained that it is harder to find good low-priced stocks these days because many of the smaller companies are staying private longer with the help of Private Equity Funds.

Apparently investors interpreted this as "The sky is falling" and they dumped the shares on Friday. Mutual funds do not provide trading volume data, but it's clear there was a lot of rapid, thoughtless selling. The shares fell 7.24% in one day.


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Did I mention that this fund has produced a 13.8% annualized gain for almost 30 years? Does Joe Sixpack think it's all of a sudden going to underperform? Here are a few more facts.

The portfolio's average P/E is 14 versus 18 for the Russell 2000 and 22 for the S&P 500. Its price-to-book, price-to-sales and price-to-cash flow ratios are all significantly below both of those benchmarks. All that while stomping the market.

Doing this for as long as I have, I shouldn't really be surprised by this kind of investor ignorance and over-reaction, but I still am.

There's nothing we can do about this except wait it out. Value will show in the end. Fidelity Low-Priced Stock Fund is a buy up to $55.25.

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