Top stock picks from top pros

These top fund managers and foreign-stock specialists thrived amid global upheaval. Find out how they did it -- and where in the world they see opportunities.

Sarah Ketterer

sarah ketterer
Ketterer sees energy as undervalued.
  • Fund: Causeway International Value Fund (CIVVX)
  • Expenses: 1.24%
  • Load: None
  • Five-year returns: 18.2%
  • 10-year returns: 8.2%

HER PICKS

Royal Dutch Shell (RDSA). The Hague-based energy conglomerate explores for, extracts, and refines oil, and Shell stations retail gasoline. That integration, and the steady income it generates, let RDS borrow relatively little to fund exploration. (Its debt-to-asset ratio is half that of its competitors, Ketterer says.) Shares took a hit recently after RDS missed earnings projections. But that's a near-term issue, she says. Plus, RDS plans to sell assets to free up cash for shareholders.

Technip (TKPPY). As offshore energy exploration grows in complexity, Paris-based Technip is one of only a few companies with the expertise to extract the oil, says Ketterer. It also designs and builds plants that will take advantage of the U.S. natural-gas revolution. So why isn't Technip trading at full value? Among other reasons, she says, the strong euro hurt the financial results of otherwise successful projects in Brazil, Nigeria, and Mexico.

Vodafone (VOD). In a year when double-digit returns will be scarce and downside protection vital, every portfolio needs ballast. For Ketterer, that's Vodafone. The U.K. telecom giant is a cash cow, she says, that consistently increases dividends, makes smart acquisitions, and reinvests profits. With modest projected earnings growth of 2%, the stock doesn't have much upside, Ketterer acknowledges. But with rumors of an AT&T (T, Fortune 500) takeover bid undergirding the share price, it's "play for preservation of capital."

HER STRATEGY: Looking for beauty where others see beasts

Ketterer has a reputation as a hard-core contrarian. In early 2010, for example, she bought Toyota (TM) before headlines about its recall crisis had even abated. The stock has since doubled.

Ironically, though, it's a focus on limiting risk that leads Ketterer to such bold calls. Her team assigns a risk score to every stock, projects earnings, and simply buys those that offer the highest risk-adjusted return. Call that a contrarian approach, if you will, but Ketterer describes it more prosaically: "Our screening drives us to neglected or unpopular companies." Then she deploys another unglamorous weapon: patience -- as the fading blemish slowly reveals a sound business.

The problem is, Ketterer says, global equity markets are at or near record highs. "We have to work harder to find undervaluation," she says. So Ketterer is focusing on energy and industrial companies. The market oversold those sectors in reaction to Asia's slowing growth, she says. China may have overheated, but in the long run it will continue to consume voraciously.

  @Money - Last updated January 24 2014 09:58 AM ET
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