During the financial crisis, Smead bought Cabela's (CAB), a chain that operates giant sporting goods stores. With consumer sales plummeting, the company seemed to face a lean period. But Smead figured that Cabela's would continue to attract customers who are passionate about hunting and fishing. Since then the stock has rebounded, but Smead plans to continue holding for years. "Customers love the stores," he says. "It is like Disneyland for adults."
While Fidelity Large Cap is considered a blend fund, portfolio manager Matthew Fruhan has flexibility to roam, often buying some growth and value stocks. His aim is to spot any companies that can outdo Wall Street's expectations. Most often the approach has succeeded. During the past five years, the fund returned 11.7% annually.
Fruhan is willing to make contrarian calls. Beginning two years ago, he loaded up on financial stocks. At the time, price-earnings ratios in the sector were near all-time lows, but Fruhan became convinced that the stocks were due to rebound. "Returns on equity were starting to trough, and management teams were starting to talk about taking out costs," he recalls.
The move into the big banks proved well-timed, and the fund scored substantial gains. Fruhan recently held a collection of strengthening banks, including JPMorgan Chase (JPM), Wells Fargo (WFC), and Bank of America (BAC).In the past year, the Fidelity fund has been holding big technology stocks, including Cisco Systems (CSCO) and Microsoft (MSFT). While investors worried that sluggish sales of personal computers could hurt the technology sector, Fruhan figured that some of the big companies had sound balance sheets and appeared undervalued. Efforts by managements to increase dividends and buy back shares could boost share prices. JPMorgan US Equity controls risk by staying broadly diversified and avoiding big bets on any one stock. The portfolio managers aim to outperform through careful stock picking and sometimes overweighting certain sectors. The cautious approach enabled the fund to outdo most competitors in the turmoil of 2008. During the past five years, the JPMorgan fund returned 9.5% annually. Portfolio manager Susan Bao is currently underweighting defensive sectors, such as utilities and consumer staples. Those have corrected in recent months, but they still sell at premiums to the overall market. She is overweight unloved cyclical sectors, including technology. Bao is especially keen on makers of equipment for semiconductor producers. Holdings include Applied Materials (AMAT) and Lam Research (LRCX). "Over the past few years, they faced a tough environment because capital spending was depressed," she says. "We think that the headwinds are pretty well played out, and we will see a big rush in spending."
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