LAKE OSWEGO, Ore. (
) -- Rob McIver, co-manager of the
, says long-term investing success means selecting high-quality securities, such as
The five-star rated Jensen Fund is up 19% this year, but perhaps more impressive is that the fund's 10-year average annual return of 3.4% was better than 94% of its peers.
Welcome to the
"Fund Manager Five Spot," where America's top mutual fund managers give their best stock picks during a rapid-fire Q&A.
Are you a bull or a bear?
I'm a long-term bull. To be a successful bull, an investor really has to understand the companies they are buying -- what has made a business successful and can that success be repeated? Because a long-term bull has to avoid losing his shirt in a bear market, we invest only in high-quality companies that have demonstrated the all-weather nature of strong business models, high profitability, consistency in their earnings and healthy free cash flow.
What is your top stock pick?
We are impressed with the consistent business performance being delivered by Abbott Laboratories. Despite a less-than-perfect economic background and much negativity surrounding health care companies in general, Abbott has done a superb job of increasing its earnings and free cash flow, although you wouldn't know it by looking at the stock performance over the last year.
For the year ending December 2009, we believe the company is on track to increase its earnings in the low double digits. Shareholders enjoy a high return on equity and it has recently announced a $6.6 billion acquisition of the European pharma company Solvay in a deal that will be funded entirely by cash from Abbott's balance sheet.
What is your top "beneath the radar" stock pick?
We have a few in the Jensen portfolio, but one of my favorites is
Cognizant Technology Solutions
, a U.S.-headquartered IT company that has most of its business operations located in India. Cognizant specializes in providing specialist IT project management expertise to global corporations that are looking to gain business efficiencies through increased usage of IT applications.
By offering world-class service and lower labor costs, Cognizant's value proposition is hard to ignore. This company offers another example of where healthy free cash flow is being deployed to consolidate a competitive advantage, in this case, through the recent purchase of UBS's India Service Center, an acquisition that broadens Cognizant's expertise in helping financial services companies.
What is your favorite sector?
Sectors can sometimes be a blunt tool. Frankly, we always analyze company-fundamentals first. Generally, the technology sector has attractive growth prospects as the needs for increasing efficiency or reducing costs through the use of technology appeals to just about every business. But it comes with a health warning -- the sector covers a wide range of businesses, some proven, high-quality companies and others. We were pleased to have had the opportunity to introduce a number of new high-quality tech positions into the Jensen portfolio -- Adobe, Cognizant and
for example -- when their share prices went on sale over the past year.
What sector or stock would you avoid?
There are a few sectors that don't qualify for investment as the underlying businesses can't produce the sustainability in earnings that we demand. They are too commoditized or have a habit of destroying shareholder value. Currently, our least favorite is the utility sector. Regulators simply don't permit these companies to generate the high levels of return on equity that we require for our shareholders. In the best of times, this sector's growth prospects are modest but in the current environment, we are concerned that the costs of meeting new legislative requirements could be enormous.
-- 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.