Behind the Headlines
THIS MONTH: Great stocks for less...Options take a chunk out of earnings...Fidelity retools. Should you care?
By Stephen Gandel

(MONEY Magazine) – GURU WATCH Buffett's Back! What He's Buying, on Sale

Some very smart money suddenly thinks stocks are starting to look cheap. Warren Buffett has been complaining for years about not being able to find compelling buys in the stock market. The lesser-known but equally value-conscious Mason Hawkins, manager of the stellar Longleaf Partners fund, has had the same gripe. But lately they've both been on a buying binge, taking sizable stakes in big, fast-growing companies whose share prices have taken a hit in the past year (see the graphics) and that are trading at price-to-earnings ratios not seen in a decade or more.

In the third quarter, Buffett's Berkshire Hathaway bought Wal-Mart (WMT) for the first time and increased its stake in Anheuser-Busch (BUD). Hawkins too bought shares of BUD, and he invested in Dell (DELL) as well. Buffett also bought more Home Depot (HD), which has been flat in the past year. All four stocks are in the Sivy 70, the list of large-cap growth companies that MONEY's Michael Sivy recommends investors rely on in building a portfolio.

Neither Buffett nor Hawkins gives interviews about his holdings, but in a November report to shareholders Hawkins and his co-managers sounded like bargain hunters who were finally seeing prices they could swoon over again: "Our research has led us to the type of companies we love to own but rarely have the opportunity to buy--high-quality businesses with dominant market shares and entrenched brand names."

Yes, these companies all face hurdles: Wal-Mart takes a public beating almost daily for its wages and benefits; Home Depot has a worthy competitor in Lowe's; Dell faces a threat from a renewed Hewlett-Packard; and Anheuser from wine and vodka. But it's a stretch to call these stocks troubled, and the companies remain the kings of their respective industries.

The risk in them looks sensible compared with that of, say, a condo in Miami or an oil stock. Hawkins and his co-managers, in fact, think that there are more good deals on the horizon. "We are glad to have more dry powder to take advantage" they told shareholders. The managers theorize that the run-up in stocks of small and mid-size companies, fueled in part by buyout funds looking for merger plays, has led investors to abandon "powerhouse names."

Says Mario Gabelli, another legendary value investor: "Many of the so-called growth stocks have come down in valuation to the point where value guys like me can back the truck up." He's been doing just that with another growth star that's stalled lately--the one founded by Buffett's good buddy Bill Gates. --STEPHEN GANDEL


NOTE: [1] One-year price change in company's common stock as of Nov. 28. SOURCE: Thomson Baseline.

PLAYING CATCH-UP Fidelity Shoots the Moon. Is That Good for You?

Can Fidelity return to its glory days of market-beating performance? That's the goal behind a very public shake-up in which star manager Harry Lange has taken over at the slumping Magellan fund and the company has committed to a $100 million revamping of its research operations.

Fidelity's woes go beyond its flagship fund; many of its best-known offerings have lagged their benchmarks, and investors have left. So Fidelity is doubling its number of stock analysts to 150 and assigning small teams of managers and analysts to work together. "We're looking to combine the resources of a large organization with the feel of a smaller one," says Stephen Jonas, head of the company's investment management division.

Perhaps, but there's no evidence that any fund family, no matter what it spends on research, can keep beating the market. Fidelity's size--five of its funds exceed $30 billion in assets--only makes the task harder: Big funds get little added return from making a killing on a few stocks.

The reason to stick with Fidelity is the decent job it does in areas that demonstrably help you. Fees are low: Its large-cap funds generally carry expense ratios of under 1%, and its Spartan index funds come in at 0.10%, less than Vanguard's. Customer service is good, and the Retirement Income Advantage online tool is the best around for figuring out how long your money will last. --PENELOPE WANG