Baxter, Becton Are Poised to Gain This Year
BALTIMORE (TheStreet) -- Russell Croft, co-manager of the Croft Value Fund (CLVFX) , says health care names like Becton Dickinson (BDX) - Get Report and Baxter International (BAX) - Get Report will be big winners this year.
The $183 million fund, which carries a four-star rating from
Morningstar
(MORN) - Get Report
, has risen 40% in the past year, beating 90% of competing funds. During the past five years, the Croft Value Fund has returned 4.1% annually, on average, better than 98% of its Morningstar rivals.
Welcome to
TheStreet's
Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks in five fast and furious questions.
Are you bullish or bearish?
Croft:
We remain bullish on the market. We are still seeing reasonable valuations on earnings that remain relatively depressed despite the low interest-rate environment.
Although the "easy money" scenario that we had since March '09 may have come to an end, we feel there are opportunities in this stock-picking environment to do your research and find good long-term investments. We plan to focus on the "Steady Eddy" names that have been beaten up by the overall market and are trading at attractive valuations as well as companies levered to a global economic rebound.
What is your favorite sector?
Croft:
As value investors, we are currently interested in opportunities in the health care sector. We are not only looking at companies whose valuations have been hurt by the health care reform overhang, but also at more defensive stocks that have not gotten the credit they deserved in the wake of the worldwide economic downturn.
The medical supply and technology industry looks attractive to us. Many of the names in this area of health care, such as Becton Dickinson and Baxter provide products whose demand is very inelastic. During the downturn, these companies continued to grow earnings at fairly steady rates, but their shares were punished. We do not feel that valuations have caught back up to earnings and have been combing the sector for attractive long-term investments.
What is your top stock pick?
Croft:
One of our favorite names for 2010 is
Cisco Systems
(CSCO) - Get Report
. We remain believers in the secular broadband traffic growth story and see no better way to play the theme than the de-facto "plumber of the Internet." Cisco's product portfolio has a total addressable market estimated to be well above $100 billion and growing. They were the victim of a corporate IT and networking investment freeze throughout parts of 2008 and 2009, but that started to thaw towards the end of the year.
We see momentum starting to turn for the core switching and routing products, as well as burgeoning growth opportunities in its TelePresence conferencing service and mobile networking. They have used their impressive cash flow and balance sheet to invest in the business and make timely acquisitions that have them poised to continue to dominate their current markets and take share in new high-growth areas.
What is your favorite "sleeper" stock pick?
Croft:
Valmont Industries
(VMI) - Get Report
is our sleeper. Valmont is No.1 in three markets: engineered support structures for lighting and traffic applications, utility support structures, and irrigation systems. Not only do we like the diversification that these three unique segments provide, but we also like the fundamentals of each business.
We feel that the long-term prospects for irrigation systems is very strong given increasing world crop demand and alarming water scarcity. The irrigation systems have compelling return-on-investment prospects, which should help drive adoption. There is a huge international opportunity in many underdeveloped countries that have made little-to-no investment in their highly fertile soil.
The engineered support and utility support services should benefit from prior underinvestment. Utility supports are needed to fix the aging and increasingly unreliable electric grid in the U.S. Emerging markets abroad are also making new investments to accommodate growing populations. Engineered support structures are benefitting from continuing urbanization combined with aging lighting infrastructure. Furthermore, these divisions are directly exposed to the American Recovery and Reinvestment Act.
What sector, industry or stock would you avoid?
Croft:
We would avoid the specialty retail and high-end retail sectors. It could take time for the consumer to return to a more aggressive spending habit. The higher-end products and specialty areas could feel that for some time.
--
Reported by Gregg Greenberg in New York
.
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.