5 Top Fidelity Funds to Buy Now

Founded over 65 years ago, Fidelity Investments is a financial powerhouse.  In all, the firm has $3.5 trillion in assets under administration and serves over 20 million individual investors.  Fidelity also provides services to more than 5,000 financial intermediaries.
No doubt, the core business at the firm is its mutual fund platform.  There are roughly 500 offerings — with a bulk of them invested in equities.  It helps that the firm has an excellent training and mentoring program for its analysts.  It’s a farm system that produces top-notch money managers.
So which funds stand out?  Let’s take a look:

Fidelity Contrafund (FCNTX)

When it comes to stock funds, one of the best money managers is Will Danoff.  In fact, he has operated the Fidelity Contrafund (MUTF: FCNTX) for roughly 20 years.  So he understands how to deal with bull and bear cycles.  Keep in mind that the annual average return since 1990 is a sizzling 12.8%.
In light of this, it should be no surprise that the Contrafund has been a magnet for investor funds (assets under management are $79.4 billion).  Yet, this size seems to be no hindrance for Danoff to generate nice returns.  For the past year, the fund was up 14.20%.
Of course, the Contrafund has a large number of big-time companies.  Some of the top holdings include Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG), Berkshire Hathaway (NYSE: BRK.B, BRK.A) and Disney (NYSE: DIS).  But Danoff also sprinkles some smaller companies in the portfolio.

Fidelity Capital & Income (FAGIX)

In a low rate environment, it is tough for bond funds to generate juicy returns.  But there are certainly opportunities in the securities of smaller companies.  These are often referred to as “high yield” bonds.
To participate in the market, there is the Fidelity Capital & Income (MUTF: FAGIX) fund.  Actually, the portfolio manager, Mark Notkin, is not afraid to ramp up the risk level when he sees value.  Some of his top bond holdings include GMAC, Sprint (NYSE: S) and HCA.  At the same time, the fund invests a part of the portfolio in stocks.
True, the volatility can be high.  But over the long run, the swings should dampen.  For example, the Fidelity Capital & Income fund has posted an average annual return of 14.09% for the past three years.

Fidelity Small Cap Discovery (FSCRX)

Small cap stocks go through hot and cold streaks.  They can also vary based on the investment styles – that is, value or growth.
So why not blend the two?  This is the approach of the Fidelity Small Cap Discovery (MUTF: FSCRX) fund.
The flexibility has helped to stabilize returns.  For example, during the 2008 financial crisis, the loss was only 27.57%, which was much better than the 37% decline in the S&P 500.  Then a year later, the fund posted a gain of 50.69% and a 32.38% return in 2010.

Fidelity Diversified International (FDIVX)

So far, it’s been topsy-turvy for global markets.  The Middle East is in the midst of upheaval and Japan continues to suffer from the massive earthquake and tsunami.
Despite all this, the fact remains that international investing is critical for any portfolio.  And a good mutual fund for this is the Fidelity Diversified International (MUTF: FDIVX).
The portfolio manager, Bill Bower, has a good sense for value.  Interestingly enough, he has had relatively light exposure to Japan.
For the most part, the focus is on large cap growth companies.  The top holdings include BP plc (NYSE: BP), Royal Dutch Shell (NYSE: RDS.A), BHP Billiton (NYSE: BHP) and Novo-Nordisk (NYSE: NVO).

Fidelity New Markets Income (FNMIX)

Investing in emerging markets sounds scary to many investors.  Just look at the massive volatility in the Egyptian stock market lately. But emerging markets can provide substantial long-term growth for a diversified portfolio.
Although, there is a lower-risk way to play this category:  investing in the bonds.  And yes, one option is the Fidelity New Markets Income (MUTF: FNMIX) fund.
Consider that the fund focuses primarily on debt that is denominated in U.S. dollars.  Basically, this helps to further lower the risk levels.
The fund also diversifies across various countries.  Holdings are in places like Russia, Bolivia and even Lebanon.
In 2009, the fund saw a 44.56% gain and then posted a return of 10.94% in the following year.
Tom Taulli’s latest book is “All About Short Selling” and his Twitter account is @ttaulli. He does not own a position in any of the stocks named here.

Higher Investment Risk and Expected Return

I’m currently reading the book The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks. Inside, he talks a lot about risk. Most people seems to grasp the idea that riskier investments offer the prospect of higher returns. Stocks are expected to offer higher returns than stocks. Bonds are considered less risky, and thus return less. However, Marks states that too many people have a simplistic risk/return relationship in their heads:

However, there is no requirement that riskier investments will actually provide those higher returns. It’s only the average expected returns that are higher, but since the uncertainty is also higher. Put another way, the distribution of potential returns is wider. To be more precise, he shares this risk/expected return chart instead:

Source: Table 5.2, The Most Important Thing

When I started investing several years ago, I remember reading several personal finance articles that responded to questions from older investors that had some catching up to do with their nest eggs. The solution was simple – own more stocks! You’ll need the extra return, they reasoned. That’s exactly the wrong way to think. There is no easy shortcut to saving more.

If Warren Is Buying Berkshire (BRK.B) Shares, Should You Too?

Warren Buffett has had a fairly clear view on company buybacks in past decades. In fact, the company has refused seriously looking into the idea for 4 decades. That has suddenly changed and Berkshire has been buying back shares of of his company.

Why Is Buffett Now Reversing Course?

We will speculate here since we cannot ask Mr. Buffett. There are probably two main explanations. Of course, the company has a lot of liquidity and while that is generally a great thing, it also makes it difficult to achieve higher returns in the meantime. However, the main reason is that Warren Buffett is convinced that the stock is undervalued and that buying back shares is doing a service to its shareholders.

If Legendary Investor Warren Buffett Thinks BRK.B Is Undervalued?

You would certainly think that the one person that can be most accurate about the value of Berkshire’s stock would be Warren Buffett wouldn’t you?

Why Now?

Here again, there are many different possibilities but I think a strong one is that in periods of high volatility such as the current one, more investors become irrational which means more mispricings. It is certainly possible that Berkshire is one of those assets that is being priced incorrectly.

Would I Be A Buyer?

I’m rarely tempted by the fact that a company is buying back its own shares. It is also rare that the company is doing this for the first time in 4 decades though and that certainly speaks volumes. So would I be a buyer? I would lean towards yes. How about you? Any thoughts on buying Berkshire?

Best Stocks to Invest in 2012 - Buffett's Favorite Stocks For 2012

Earnings of Dow stocks Procter & Gamble, Kraft and Johnson & Johnson will be scoured the most by billionaire investor Warren Buffett, whose Berkshire Hathaway is among the top four shareholders of each.

Those three companies, and the other Dow consumer-goods stock McDonald's, will start reporting earnings Jan. 24.

Procter & Gamble, Kraft, Johnson & Johnson and McDonald's had virtually flat earnings last year, according to analysts' estimates.

Nevertheless, Buffett has made a fortune by buying large and steady companies. (He also owns Coca-Cola

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.) As the economy rebounds this year, not only growth stocks such as Best Stocks to Invest in 2012 - Apple
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and Netflix
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may outpace the Best Stocks to Invest in 2012 - S&P 500 Index, but also laggards including Dow Jones Industrial Average top stocks for 2012.

The 2010 share-price returns of the four Dow consumer stocks are led by McDonald's, at 27%, and bracketed by Johnson & Johnson, with a decline of 0.7%. Dow stocks gained 11% last year, while the S&P 500 rose 15%. The Dow industrials have advanced a mere 7% over the past decade, trailing small- and mid-cap stocks.

But large-cap stocks are considered undervalued, based on current price-to-earnings ratios versus historical norms, and are overdue for a breakout, according to fund managers including Bruce Berkowitz of the Fairholme Fund and Donald Yacktman of the Yacktman Fund. So these companies could soon shine, especially as inflation quickens when they can pass on rising costs to customers.

Among the challenges faced by food-industry firms Best Stocks to Invest in 2012 - McDonald's and Kraft

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is rising agricultural commodity prices, which put pressure on profits in the fourth quarter. They are expected to bump up prices because of that.

Another common issue is the push for a bigger geographic footprint. Johnson & Johnson and Procter & Gamble are long-standing international forces. Kraft bought the U.K.'s Cadbury, a candy maker, about a year ago to boost its international business. And McDonald's is pinning much of its growth prospects on China, where business is booming.

Buffett's investing philosophy includes buying high-dividend-paying stocks with strong fundamentals and some sort of "moat" such as a strong brand name, market dominance and industry leadership.

And each of those companies has those characteristics.

Buffett is also known as a buy-and-hold investor. As evidence of that, the three companies were also among the top seven holdings of Berkshire Hathaway at the end of 2008.

What follows are the fourth-quarter earnings expectations of four companies in the Dow's consumer-products sector, arranged by reporting dates, starting with McDonald's.

Buffett's Favorite Stocks For 2012: Best Stocks to Invest in 2012McDonald's

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, the fast-food giant, reports earnings Jan. 24. Wall Street analysts surveyed by Thomson Reuters expect earnings of $1.16 per share on revenue of $6.2 billion. For the same period a year earlier, profit was $1.11 per share on $6 billion in revenue.

Business from China was a big contributor to fourth-quarter earnings, and the earnings outlook from analysts increased 3.5% over the period because of that. China is expected to be the growth driver in coming years, and the company plans to boost capital spending there by 40% this year.

The consensus analysts' estimate from Thomson Reuters calls for 2010 earnings of $4.60 per share, rising to $5.02 in 2012. It said analysts' consensus price target over the next 12 months is $85.40, a 15% premium to its current price.

Shares of McDonald’s gained 27% in 2010 versus the 35% increase of the restaurant sector tracked by Morningstar. Its shares are down 2% this year. They have a dividend yield of 3.3%.

At the end of the third quarter, Capital World Investors was the largest shareholder, with a 6% stake, despite selling 7 million shares in the period. Fidelity was the second-largest shareholder, and bought 3 million shares to grow its stake to 4% in the third quarter.

Analysts have eight "strong buy" ratings, seven "buy" ratings, 10 "holds," and one "reduce" on its shares, according to Thomson Reuters.

Best Stocks to Invest in 2012 Buffett's Favorite Stocks For 2012:Johnson & Johnson

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will release its fourth-quarter earnings Jan. 25. Analysts expect it to report $1.03 per share, versus $1.02 last year, according to Thomson Reuters. In the third quarter it earned $1.23. That would bring 2010 earnings to $4.75. It earned $4.63 in 2009.

The company's quarterly earnings have been relatively flat over the past three years. Analysts expect its earnings to grow 5% to $4.97 per share in 2012. Projected 2010 revenue is $62 billion, flat to 2009.

Johnson & Johnson is one of the world's largest and most diverse health-care companies, with three divisions: pharmaceutical, medical devices and diagnostics, and consumer products.

Johnson & Johnson also has been one of the most respected brands in its various fields, but that is being undermined by a series of recalls, the most recent about a week ago.

On Jan. 14, it announced the recall of nearly 47 million units of over-the-counter medicines including bottles of certain Tylenol, Benadryl, Sudafed and Sinutab products distributed in the U.S., the Caribbean and Brazil.

The company faces challenges on other fronts as well. The patent rights of two of its big sellers — the antipsychotic Risperdal and the neuroscience drug Topamax — expired recently, which will hurt revenue.

But its fundamentals are solid, including a diverse revenue base (each business represents about a third of annual revenue), protected markets, because of its many patents and huge cash flow that it uses to fund its research pipeline and make acquisitions.

Johnson & Johnson's shares gained 11% in 2009, lost 0.7% in 2010 and are up 1% this year. It shares have a dividend yield of 3.49%. The company announced a $10 billion share-repurchase program late last year, which should help boost prices.

A poll of 17 analysts by Thomson Reuters gives it a 12-month price target of $67.70, or an 8.2% premium to the current price. Those same analysts give its shares three "buy" ratings, 10 "buy," and 11 "hold."

At the end of the third quarter, State Street was the biggest shareholder, with 5% of outstanding shares, about the same as over the course of the previous year. Berkshire Hathaway is the fourth-largest shareholder, at 1.6%, and the number of shares owned was up by over 30% in the first three quarters of 2010.

Best Stocks to Invest in 2012Buffett's Favorite Stocks For 2012:Procter & Gamble

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, the international household-products conglomerate, is expected to report earnings of $1.10 per share on Jan. 27 for its second fiscal quarter, down from last year's $1.49 per share. In the previous quarter, its first fiscal quarter, which ended Sept. 30, it earned $1.02 per share. Analysts expect 2010 earnings of $3.98 per share down from $4.11 in 2010.

Among P&G's well-known branded products are Tide detergent, Dawn dishwashing liquid, Bounty paper towels, Pringles snack chips, Gillette shavers and Duracell batteries. The firm offers multiple products in a category and often more than one brand and regularly comes out with improvements to retain customers.

The mean consensus 12-month share-price target of 18 analysts is $71.60, a 9.3% premium to the current price, according to Thomson Reuters. It has a dividend yield of 2.9%. A healthy 9.5% dividend increase in fiscal 2010 and planned share buybacks of $6 billion help make its share s more attractive.

The stock has underperformed the broader market over the past two years, gaining 9% in 2010 and about 1% in 2009. Shares are up 1.6% this year and hit a 52-week high Jan. 18. Berkshire Hathaway is third-largest shareholder, at 2.7%. Its share holdings were down slightly in the third quarter, the latest period for which such information is available.

Kraft Foods will release its fourth-quarter results Feb. 10. Analysts expect earnings, on average, of 46.5 cents per share, versus 48 cents last year. In the third quarter, it reported 47 cents per share. Kraft's quarterly earnings have hovered around 50 cents per share for the past four years. Earnings for 2010 are pegged at $2.03 per share on revenue of $49 billion, and are seen rising to $2.32 per share in 2012.

Kraft acquired U.K. candy company Cadbury early last year in a $19 billion deal and is still in the process of restructuring to integrate it into its other businesses. Cadbury's brands and distribution capabilities worldwide are expected to leverage sales of Kraft's products. The company manufactures and markets packaged food products, including snacks, beverages and packaged grocery products.

Kraft has operations in more than 70 countries. Its brands include Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee and Nabisco cookies and crackers.

Shares gained 20% last year and 5.6% in 2009. They are down 1% this year. They have a dividend yield of 3.7%. Kraft's shares are seen as cheap, given its 14.1 forward price-to-earnings ratio.

According to Thomson Reuters, analysts give Kraft shares seven "strong buy" ratings, eight "buys" and six "holds." Their current 12-month share-price target is $35.10, a 2.3% premium to the current price. Berkshire Hathaway

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is the largest shareholder in Kraft, at 6% of outstanding shares, which is almost 7% of Berkshire Hathaway's assets. That stake is down about 24% from the beginning of 2010. Kraft shares were up 20% in 2010 and are down 1% this year.