Leading fund manager is betting big on these 5 shares

Carsales.com Ltd (ASX:CAR) and Vocus Group Ltd (ASX:VOC) have found favour with stock pickers at Australian Foundation Investment Company (ASX:AFI).

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This morning one of Australia's leading fund mangers in the Australian Foundation Investment Company (AFIC) (ASX: AFI) revealed a profit of $118.3 million for the six-month period ending December 31 2016.

Earnings per share came in at 10.4 cents with the interim dividend flat at 10 cents per share. The portfolio return for the six-month period ending December 31 2016 was 8.6%, which is roughly in line with the return of global equity markets that were supported by investor excitement over the prospect of a change of government in North America.

In Australia the resources and banking sectors performed particularly well over the period, but the stock pickers at AFIC also revealed that they spent more than $10 million of the portfolio's funds on the following stocks over the period.

It's also worth noting that given the size of the investments the stock pickers at AFIC must be confident in these companies' prospects, so let's take a look at what companies they chose and consider what makes them attractive.

Link Administration Holdings Ltd (ASX: LNK) is the shareholder services business that helps administrate financial ownership data for 10 million superannuation account holders and 25 million individual shareholders. After a slip in stock value over the second half of 2016 it's likely AFIC took the opportunity to buy a business that has defensive earnings streams and high levels of recurring revenue.

Vocus Group Ltd (ASX: VOC) saw its shares slaughtered over the second half of 2016 largely thanks to a swing in sentiment and an update it provided over the performance of its Nextgen business. Today shares sell for $4.26 and look excellent value for investors prepared to take a long-term view.

Carsales.com Ltd (ASX: CAR) is another business that saw its stock fall in value over the half-year period. The lower valuations probably attracted the fund managers in adding what is one of the ASX's best digital businesses, even if its growth rates are slowing.

iSentia Group Ltd (ASX: ISD) is the media monitoring business that collapsed in value over 2016 after it announced a shock profit downgrade at its November 2016 AGM. If I owned shares in this business heading into the February results I would be nervous given the weak first half and fact that there are still expectations for a far stronger second half built into the current share price.

Cochlear Ltd (ASX: COH) is the hearing implant manufacturer that also slipped in value over the second half of 2016. Today it sells for $126.20 and given that it is likely to report a strong earnings result next month I expect the shares could perform well for the fund manager. Thanks to its competitive advantages and the high barriers to entry across the implantable hearing aid industry, I expect Cochlear will handsomely reward long-term shareholders.

Motley Fool contributor Tom Richardson owns shares of Cochlear Ltd. and Vocus Communications Limited. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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