Find Fiscal Cliff Safety in Pepsi, Varian Medical

NEW YORK (TheStreet) -- The looming fiscal cliff should have investors seeking safety in high-quality stocks like Pepsi (PEP) and Varian Medical Systems (VAR), says Rob McIver, portfolio manager for the Jensen Quality Growth Fund (JENSX).

The $4 billion fund, which garners four stars from fund rater Morningstar, has returned 13% in the past year, outpacing two-thirds of its rivals in the firm's large-cap growth category.

Welcome to TheStreet's Fund Manager Five Spot, where top fund managers give their best stock picks and views on the market in a five-question format.

What is your view of the economy?

McIver: We are optimistic on the long-term outlook for the U.S. economy, but more cautious in the short term. The U.S. unemployment rate has been too high for a robust recovery to take hold and the ongoing Eurozone economic problems remain a significant headwind and the recession in Europe has been a major theme of the third quarter's earning's season.

As the looming U.S. fiscal cliff is less than two months away, we favor high-quality growth companies that are able to deliver consistently high returns on equity. We are demanding investors and we'll only invest in a company if it has been able to post a return on equity of at least 15% each year for 10 years. Fewer than 200 US companies meet this hurdle but the average return on equity of our portfolio companies today is over 28%, so despite the challenging economic conditions, these are incredibly profitable businesses.

What is your top stock pick?

McIver: We are impressed with the long-term business performance delivered by Pepsi, a global market dominator in the snacks and beverage markets. Pepsi accounts for 40% of the worldwide market in salty snacks, making it 10 times larger than its next closest competitor. The company owns 19 brands that generate sales of more than $1 billion per year and the company's daily net income is more than $17 million.

Pepsi is heavily focused on growing overseas revenues that now account for nearly 50% of its total and the faster growing emerging markets account for about 31% of sales. We also believe that the management team is stockholder-friendly, returning over $25 billion to shareholders in the form of dividends and share buybacks over the five years ended December 2011, but the share price does not appear expensive to us.

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