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Back at the end of July, I wrote a column about stocks that the "smart money" was buying, according to mutual fund trackers at Morningstar. Now, a month later, the smart money fund managers have filed fresh information on their investing, and we have an update on their purchases.

The key takeaway: The biggest smart money purchases were in National Oilwell Varco (NOV), one of the largest rig companies, and General Motors (GM). Interestingly, these companies topped two lists. They topped the list that ranks the biggest new positions taken by the best mutual fund managers, and a list that ranks companies by how much money was added to existing positions.

Bill Nygren at Oakmark (OAKMX) fund, a manager on Morningstar's smart money team, likes National Oilwell Varco because the stock price has simply fallen too much, considering the fairly modest retreat in earnings that has other investors worried. The stock has dropped to $48 recently from $58 in February, due in part to a fairly modest decline in earnings of around 5% in the first half of the year. The stock was as high as $90 last year.

"We expect earnings to begin to recover later this year, and we believe that next year could be the most profitable in the company's history," says Nygren. He thinks a rebound in the global land rig use, continued strong deepwater equipment orders and benefits from several acquisitions will help the company.

Nygren and other smart-money managers, including those at Warren Buffett's Berkshire Hathaway (BRK.B), were also buying General Motors recently. For Nygren, it's a new position, and Berkshire Hathaway was adding to a position.

Nygren notes that a restructured GM coming out of bankruptcy a few years ago has lower costs and debt. He's counting on emerging market demand to help support sales -- in

Image: Michael Brush

Michael Brush

addition to continued strength in car sales in the United States. Plus the stock looks cheap, he says, with a price-to-earnings ratio of around 8.

Another interesting takeaway from Morningstar's smart money fund managers: It's just getting pretty darn hard to find decent stocks at decent valuations, given the strength in the market this year.

"Today it is very difficult to find stocks that have defendable business franchises and strong balance sheets, and that trade at attractive valuations," says Pat English of FMI Large Cap (FMIHX) fund. In the last two major bull market rallies, during the late 1990s tech boom and the housing related bubble in the middle of the last decade, most of the exuberance was limited to a few sectors -- like tech and housing. "Today, this is not the case," says English

But there's hope around the corner for value hunters like English.

A constellation of factors seems aligned to bring a significant market pullback in September, which is traditionally the weakest month in the stock market, as I recently wrote.  

The bottom line: With the exception of cheap stocks like National Oilwell Varco or General Motors, it might pay to trim positions in rallies to raise cash -- or keep your cash on the sidelines if you already have some in your brokerage account. Better prices may lie just around the corner, in September.

Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.