) -- Daniel Cole, manager of the
John Hancock Small Cap Equity Fund
, is predicting a "boom" in mergers and acquisitions activity when the economy rebounds. He expects
to benefit from the resurgence.
His fund has climbed 30% this year, outperforming 90% of its
peers. It has lost 7% annually, on average, in the past three years, beating 39% of rival funds.
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?
I'm bullish. Economic data related to industrial production and inventory restocking will begin to surprise to the upside. Companies related to these areas of the economy are beginning to see a stabilization in earnings estimates as analysts have gotten overly pessimistic. This is leading to rising valuation prospects for large portions of the economy.
What is your top stock pick?
Evercore Partners, which has a market capitalization of $360 million. Evercore, headquartered in New York, operates a boutique investment bank that provides advisory services to multinational companies on mergers, restructuring and other strategic transactions. The firm also offers investment management. Marquee clients include
We're at a cyclical low point in the high-margin advisory business. The demand for corporate restructuring and reorganization is large and growing.
The past two decades have created excessive leverage and capacity across large swaths of the economy and the landscape of many industries is going to be transformed due to economic necessity. For Evercore, in particular, the financial crisis has created a backlash against its larger, better-known competitors and therefore the company has benefitted from an influx of top talent. The coming boom in advisory and M&A business will be larger and last longer than currently expected.
What is your favorite "sleeper" stock pick?
, which has a market capitalization of $415 million. Horsehead Holding is a leading U.S. producer of specialty zinc and zinc-based products. Headquartered in Pittsburgh, PA, Horsehead employs over 800 people and has seven locations throughout the U.S.
Zinc is used in the production of steel to make it corrosion resistant. Global inventories of zinc are down significantly from the 2008 peak, worldwide capacity has been reduced and the demand for zinc is growing faster than steel overall as the emerging regions of the world advance.
Horsehead Holding is the largest recycler of electric arc furnace, or EAF, dust in North America, a zinc-bearing hazardous waste produced as a byproduct of steel production at U.S. mini mills, such as
. Horsehead's recycling technologies and zinc production operations form a complete loop from recycled zinc to finished products, making them the low-cost producer in the industry.
What is your favorite sector?
My favorite is the materials sector which is benefitting from a resurgence in demand for raw materials and expectations of rising inflation in the future.
Which sector, industry or stock would you avoid?
My least favorite sector is U.S. consumer discretionary, along with many industries that are still plagued with excess capacity and competition.
-- Reported by Danielle Kost in Boston
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