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Morningstar: Best Ideas from Best Managers: Apollo Group, Western Union, Procter & Gamble, Genzyme, WellPoint, UnitedHealth Group, Novartis, Monsanto, Comcast Corporation

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From over 100 stocks held by best fund managers such as Bruce Berkowitz and Donald Yacktman, MorningStar's Creggrory Warren chose the following nine stocks as the best investment ideas.

In reaching these selections, Warren compared the stock prices with MorningStar's estimates of intrinsic value:

Apollo Group (APOL)

With more than 450,000 students, Apollo is the largest for-profit university in the United States. Our analyst Todd Young feels that the firm's size and scale (which is the largest in the industry), its efficient operations, price-inelastic customers, and corporate- and government-aided student financing, provide Apollo with a wide economic moat. While near-term concerns over student default rates and revenue recognition practices have suppressed the stocks of for-profit education firms, Todd believes that strong demand for post-secondary education should continue to benefit companies like Apollo longer term.

Western Union (WU)

Our analyst Brett Horn believes that Western Union is the clear leader in an industry where size confers significant advantages. With a network of over 375,000 agents worldwide, and a marked cost advantage over its rivals, he believes that Western Union is well-positioned to come out on the back end of the global economic downturn in a stronger operating position than its peers.

Procter & Gamble (PG)

While Procter & Gamble's size confers tremendous benefits in terms of distribution, brand reach, and scale with suppliers, our analyst Lauren DeSanto believes that the household products giant was caught flat-footed in its response to the dramatic downturn in consumer spending. With a new CEO at the helm, however, and plans implemented to reinvigorate top-line and earnings growth, she remains confident that P&G will be able to reposition itself for the more challenging economy.

Genzyme (GENZ)

Our analyst Karen Andersen believes Genzyme's in-house innovation and smart acquisitions have enhanced its ability to succeed globally. Despite the impact that ongoing supply constraints of two of its leading rare disease therapies have had on results over the past year, Karen feels the firm's manufacturing and strategy improvements should set the stage for a recovery in 2010.

WellPoint (WLP)

As a leading health insurer, WellPoint's stock has been challenged by the uncertainty of health-care reform. Our analyst Matthew Coffina believes that WellPoint's economies of scale and broad, low-cost provider network provide it with distinct advantages. It is the largest managed care organization (by medical membership) in the United States and enjoys a particularly strong bargaining position when dealing with health-care providers.

UnitedHealth Group (UNH)

The complete set of implications health-care reform holds for UnitedHealth are also difficult to anticipate, but Matthew thinks the company will continue to play an important role in financing health care services. He remains impressed with UnitedHealth's ability to leverage its 33 million medical members to negotiate large discounts with health care providers that want to be part of the company's network.

Novartis (NVS)

In an industry plagued by stagnant growth, Novartis has emerged as a juggernaut in the pharmaceuticals industry with a uniquely diversified operating platform--which includes branded pharmaceuticals, generics, vaccines, diagnostics, and consumer products--and an industry-leading number of new potential blockbuster drugs. Our analyst Damien Conover expects the firm's recent move to acquire the remainder of Alcon (ACL) it does not already own will only add to the mix, creating both revenue and cost synergies for Novartis longer term.

Monsanto (MON)

Our basic materials analysts believe that Monsanto is a fierce competitor that continues to dominate a market that it essentially created more than a decade ago. While there have been some near-term headwinds--primarily from increased competition within its Roundup herbicide business--they feel that the firm's ongoing commitment to research and development and assertive capital allocation will allow it to continue to reward shareholders in the long run.

Comcast Corporation (CMCSK)

Besides being the largest domestic cable provider, Comcast is also a significant provider of Internet and telephone services. Our analyst Michael Hodel believes Comcast's competitive advantages stem from the fact that no other company can match it ability to offer multiple services over one connection within the territories it serves. While he's not enthralled with the firm's move to acquire NBC Universal from General Electric (GE), believing the combination of content creation and distribution will create little value for Comcast longer term, he feels the shares are relatively attractive at today's prices.

Read the complete article at http://www.morningstar.com


Rating: 3.3/5 (4 votes)

Comments

superguru
Superguru - 4 years ago
Cramer has a sell on APOL
batbeer2
Batbeer2 premium member - 4 years ago
Cramer has a sell on APOL

In this case I agree with Cramer. APOL (University of Phoenix) has a 4% graduation rate. 4% of their students graduate within 6 years. Kaplan, Corinthian colleges, DeVry etc have AT LEAST 30%.

http://oedb.org/rankings/graduation-rate

For the business, this means APOL has at least twice the churn of the others. If one assumes (conservatively) that 50% of those that drop out do so in the first year, the APOL sales team has to replace nearly half the students each year just to maintain the status quo. If 75% of those that drop out do so in year 1, you see what the sales team is up against.

Margins are very high as a result of this model. Sell a dream, collect the fees and do not provide a meaningfull service. It's a low cost high margin model.

Before anyone goes shorting this one, they have been exploiting this model for at least 5 years. IMO it is inevitable that APOL falls of a cliff. The only problem is predicting when.

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