BETHESDA, Md. (
) -- Richard England, co-manager of the
Calvert Social Investment Equity Fund
, says health care stocks will be helped, not hurt, by reform. He's avoiding telecom stocks, whose earnings are unsteady.
The fund, which garners four stars from
, has risen 32% this year, beating the
S&P 500 Index
by 7.7 percentage points. Over the past 10 years, the portfolio has returned an average of 3.7% annually, better than 95% of its Morningstar rivals.
Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers share their investment views in five fast and furious questions.
Are you a bull or bear?
I am a bull. I believe that the increase in the market to date has been completely justified by improvements in the credit markets, better-than-worse economic news and a steady recovery in corporate earnings. We think all that will continue. The economy will keep improving, probably in a "two steps forward, one step back" fashion. The economic recovery and the weaker dollar will propel earnings higher over the next eight to 12 quarters. We expect earnings to keep surprising on the upside, as they are doing here in the third quarter. We see the stock market solidly higher 12 months from now.
What is your top stock pick?
quite a bit. The health care reform debate has left most health care stocks for dead the last several months. Gilead, the leading maker of drugs for treating HIV, is largely immune from whatever fallout reform produces. The company benefits from increased detection and earlier treatment. It also has several new compound opportunities that will allow them expand their already strong position. Earnings estimates are rising as they have positively surprised. Valuation is downright cheap, and Wall Street concerns about patents in 2017 are misplaced.
What sector or stock would you avoid?
We tend to be pretty diversified, but we would avoid telecom and utilities, mostly because we feel it's too hard to find decent earnings growth in those sectors.
Additionally, we would say that within energy, we favor oil-related names to gas ones. We feel that gas is in oversupply and is a primarily domestic market. On the other hand, given growth in emerging markets, oil is likely to be in short supply again in the not too distant future.
What is your favorite sector?
My favorite sector is fast becoming health care. The sector has significantly lagged the market from just before the March 9 low. It's more defensive, but the great uncertainty about health care reform has put added pressure on the stocks. The market hates uncertainty and we have plenty of that, thanks to Washington.
We believe that once the reform debate is concluded -- no matter the outcome -- a rally is likely to ensue. If reform collapses, the rally will be very significant. Even if a bill makes it to the president's desk, we think health care stocks can rise on the veil of uncertainty being lifted. In this case, there will surely be winners and losers, but we still would expect the sector to outperform.
What is your top "under-the-radar" stock pick?
My under-the-radar stock is
. This stock is seriously misunderstood. CVS today is half retail-pharmacy and half pharmacy benefit manager. The Wall Street analysts that follow it specialize in one side or the other, and don't understand the side they don't specialize in. The advantage of CVS is the combination of the two parts. That gives them great opportunities, and yet the stock trades at a discount to both
and the other pharmacy benefit managers. It should trade at a premium.
-- 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.