One of the best ways to find good investment ideas is to study the holdings of successful money managers. I do it all the time. These men and women are paid handsomely to find the best stocks possible. It would be silly not to ride their coattails once in awhile. Another less obvious method for finding stocks is to examine the holdings of student-run, university-endowed undergraduate and graduate investment funds. Forward-thinking universities are slicing off a small piece of their endowment funds so that business students can learn the ropes while working with real funds. There is no better way to educate future investment professionals than by giving them a dose of reality. Today, I'll look at the top five holdings of the Mizzou Investment Fund at the University of Missouri Business School. This past fall, students produced reports on each of its holdings with recommendations for the future. I'll examine their findings.

IN PICTURES: Learn To Invest In 10 Steps

Top Five Holdings By Dollar Amount - Mizzou Investment Fund

Company 2009 Return
Philip Morris International (NYSE: PM) 15.9%
Transocean (NYSE: RIG) 75.2%
Procter & Gamble (NYSE: PG) 0.9%
Flowserve (NYSE: FLS) 85.7%
Microsoft (Nasdaq: MSFT) 59.5%

S&P 500 23.5%

Great Performance
The Mizzou Investment Fund's website doesn't provide a lot of information about its performance, so I will assume that all five stocks were held for the entire year. If so, at least based on its top five holdings, the fund likely had a strong year in 2009. Hopefully I can get those numbers in the future. In the meantime, I'll highlight the students' observations about each of these holdings.

Philip Morris International
Student analyst Andrea Gill gave the tobacco company an intrinsic value of $52.40 back in September 2009 based on its discounted cash flow. Her recommendation was to sell some of its holdings because better growth opportunities were available involving less government regulation and industry competition. If current holdings are accurate, the fund did not sell any shares despite the recommendation. Its shares are down only slightly since then, so perhaps they've decided to hold into the 50s.

In October, Mizzou's student analyst covering Transocean's stock gave it an intrinsic value of $84.51, recommending that the fund continue to hold Transocean as its shares were undervalued based on future earnings from a $40 billion contract backlog. I couldn't agree more. With a free cash flow yield over 10% and its enterprise value just six times EBITDA, Goldman Sachs' (NYSE: GS) $111 price target seems more than reasonable. Good call, Tigers!

Procter & Gamble
The analyst gave P&G an intrinsic value of $68.79 with a hold recommendation. Using SWOT analysis (Strengths, Weaknesses, Opportunities and Threats), the positives the students found about the giant packaged goods company include its laundry list of brands as well as its vital presence in the growing economies of Russia, China and India. In terms of downside, they felt P&G's inability to raise prices much given the intense competition, along with its reliance on Wal-Mart (NYSE: WMT) for 15% of its overall sales, means it's boxed in to a certain extent, unable to write its own ticket. Despite these lingering doubts, P&G stock is up more than 10% since the analysis was done in September. Very little has changed in the meantime, so I'd think at this point they would be reluctant to sell until its stock price is closer to its true value.

As its name suggests, Flowserve sells flow control products to the oil industry among others. The Mizzou brain trust pegs its intrinsic value at $94.51. The student analyst who wrote up this report believes the fund should hold the stock with a look to possibly buy more in the future. However, he does mention proceeding with care as its stock is quite volatile. You better believe it is. Flowserve announced January 29 that its earnings per share would be at least $7.20-$7.50 and quite possibly more due to 90 cents a share in realignment charges. At the low end of the range, we're talking about a 12.5 price-to-earnings ratio with margins higher than the competition. The upside looks good.

For the last of the fund's largest five holdings, Microsoft, the fund's analyst arrived at an intrinsic value of $25.95 back in October. That's where it was trading at the time. Three months later, it sits around the $28 mark, up almost 10%. Once again, the analyst responsible for the report gave a "Hold" recommendation on its stock, the fourth in five tries. Normally I'd be critical of sitting on the fence, but in this instance, it's a good decision because the market came a long way in 2009 and is bound to correct some.

Bottom Line
Do yourself a favor and get to sites like the one hosted by the University of Missouri. The analysis is pretty standard stuff, but the fact that the students do it for each and every holding is impressive. Part of investing successfully is putting together a plan and sticking to it. The students at Mizzou prove it can be done with some successful results to boot. Good for them. (We take a close look at the main principles the "Oracle of Omaha" uses in assessing a company. For more information, read What Is Warren Buffett's Investing Style? and Warren Buffett: How He Does It.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Retirement

    Smart Ways to Tap Your Retirement Portfolio

    A rundown of strategies, from what to liquidate first to how much to withdraw, along with their tax consquences.
  4. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  5. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  6. Mutual Funds & ETFs

    The ABCs of Mutual Fund Classes

    There are three main mutual fund classes, and each charges fees in a different way.
  7. Investing Basics

    5 Common Mistakes Young Investors Make

    Missteps are common whenever you’re learning something new. But in investing, missteps can have serious financial consequences.
  8. Mutual Funds & ETFs

    The 4 Best American Funds for Growth Investors in 2016

    Discover four excellent growth funds from American Funds, one of the country's premier mutual fund families with a history of consistent returns.
  9. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  10. Products and Investments

    A Guide to DIY Portfolio Management

    These are some of the pillars needed to build a DIY portfolio.
  1. Does mutual fund manager tenure matter?

    Mutual fund investors have numerous items to consider when selecting a fund, including investment style, sector focus, operating ... Read Full Answer >>
  2. Why do financial advisors dislike target-date funds?

    Financial advisors dislike target-date funds because these funds tend to charge high fees and have limited histories. It ... Read Full Answer >>
  3. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  4. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  5. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>
  6. What fees do financial advisors charge?

    Financial advisors who operate as fee-only planners charge a percentage, usually 1 to 2%, of a client's net assets. For a ... Read Full Answer >>
Trading Center