Sharpening his focus

Joel Tillinghast explains how he hopes to do more for shareholders by owning fewer companies.

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"One of my goals in the latter part of 2020 is to add value for the fund by further sharpening my focus on stocks I know well, and the investments in which I have high conviction," says Joel Tillinghast, lead portfolio manager of Fidelity® Low-Priced Stock Fund (FLPSX).

Tillinghast says he carefully reviewed opportunities in March, when valuations in many industries began to decline. For instance, he notes prices for the stocks of leisure companies, restaurants, and commercial real estate firms were hit particularly hard.

Yet, he didn't add exposure to these industries, fearing that the multiyear trend of consumers buying experiences rather than things could reverse. He believed restaurants without online ordering and delivery could still struggle. And he worried less commercial and office construction could lower rents and property prices.

The economy will recover eventually, he says, but, in the meantime, he thinks well-capitalized companies that are serving useful niches in their communities could remain resilient and be in a better competitive position entering a new economic upturn.

Among the few places where Tillinghast has added positions, he's focused on very low valuations. Partly for this reason, he says, the fund's median price-earnings (P/E) ratio remains near a decade trough.

Examples of companies that fit the bill of very attractive P/E ratios and resilient business models were Discover Financial (DFS) and Synchrony Financial (SYF), non-benchmark fund holdings as of May 31.

Tillinghast also maintained notable overweightings in select health care companies, including UnitedHealth Group (UNH) and drugmaker Amgen (AMGN); retailers such as Ross Stores (ROST), AutoZone (AZO), and Best Buy (BBY); and technology companies Seagate Technology (STX) and Ansys (ANSS).

"I think these companies could eventually come back stronger than ever," he says.

Fidelity® Low-Priced Stock Fund, held securities mentioned in this article on May 31, 2020. As of this date, these companies accounted for the following percentages of fund assets: Discover Financial, 0.52%; Synchrony Financial, 1.18%; UnitedHealth Group, 6.08%; Amgen, 2.69%; Ross Stores, 3.64%; AutoZone, 3.13%; Best Buy, 2.83%; Seagate Technology, 2.85%; and Ansys, 2.11%.

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Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

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