Biggest Risk Is Missing the Rally, Mercer Says

NEW YORK (TheStreet) -- Charles Mercer, co-manager of Aston/Veredus Select Growth(AVISX Quote), says one of the biggest risks in the stock market today is missing out on an extension of the rally, which will be powered by a rebound in earnings. Technology stocks will lead the way, he says.

The large-cap blend fund, which holds a mix of growth and value shares, has risen 28% this year, about 10 percentage points better than the S&P 500 Index. Over the past three years, the Aston/Veredus Select Growth fund has lost an annual average of 2.2% of its value, less than 61% of its peers.

Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks.

Are you bullish or bearish?

Mercer: I am still a bull but think we will digest some of the recent gains similar to the pause we saw in the market from early May to July. However, the credit crisis is essentially over, and I expect a quick surge in job [creation], and ultimately the risk in the short term is skewed toward missing further upside.

What is your top stock pick?

Mercer: My favorite stock pick is Delta Airlines(DAL Quote). After the industry digests the capital raises they are currently undergoing, which will be much quicker than when the financials did this in May and June, the stock could easily go back to the levels seen in 2008. We saw from Carnival Cruise(CCL Quote) that there is an appetite for travel, when the company said bookings for the first half of 2010 were up 19%. Keep in mind that revenue expectations for the airlines is on only up mid-single digits for next year. Furthermore, we should see corporate travel start to pick up immediately, in addition to leisure travel growth. Meanwhile, the industry continues to cut capacity, which is lowering the fixed costs and paving the way for higher revenue per mile and earnings. Overall sentiment for consumer-discretionary stocks should continue to rise as unemployment falls and we shift to net job creation.