) -- Chris Guinther, manager of the
RidgeWorth Small Cap Growth Stock Fund
, says stock-market gains probably will be more modest next year as share prices are less attractive.
The mutual fund has risen 26% this year, compared with 19% for the
S&P SmallCap 600 Index
. Over three years, the RidgeWorth Small Cap Growth Stock Fund has fallen an average of 6.8% annually, in line with the index. Guinther is chief investment officer of Silvant Capital Management, the sub-adviser of the fund.
Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their views in five questions.
Are you bullish or bearish on the stock market?
Silvant's investment outlook over the next nine to 12 months leans toward a bullish posture. The rise in stock prices of about 60% from the March lows certainly suggests that the opportunities are less compelling than six months ago. Nevertheless, we continue to see opportunities as we move from recession to recovery and the prospects for earnings growth improves. Admittedly, given current valuations of about 16 to 17 times earnings on the
, returns are likely to be more modest and a bit harder to come by.
What is your top stock pick?
Our current top stock picks in the RidgeWorth Small Cap Growth Fund are
. We are positive on Tupperware due to its high organic growth resulting from significant exposure to rapidly growing emerging markets, potential for margin improvement and upside momentum to earnings combined with strong free cash flow and a reasonable valuation. Actuant is a diversified industrial company with early cycle exposure. Its key markets, such as residential construction, autos and trucks, are showing signs of improvement. We expect upward bias to earnings estimates from the end-market improvement and aggressive cost reductions. Actuant trades at a substantial discount on earnings and sales.
What is your top "beneath the radar" stock pick?
Our current "sleeper" stock idea in the fund is
. Investor sentiment on financials remains negative due to continued concerns over credit losses. Raymond James' core business of brokerage and asset management has experienced higher growth than its peers. Credit losses are declining. We believe this reduction of credit expense will continue to drive earnings well above current expectations. Similar to most financial stocks, Raymond James' valuation is low and skepticism is high.
What is your favorite industry?
Our current favorite sector is consumer discretionary. Sentiment is still low as investors believe consumer spending will be constrained as a result of high unemployment, a weak housing environment and higher savings rates. We believe expectations for companies in the sector are too low. There is positive momentum to estimates and earnings that is sustainable. Overall consumer spending will eventually improve as confidence improves. The sector can produce upside by combining true organic growth with the cyclical recovery impact, relative to other sectors.
Which sector would you avoid?
Our least favorite sector is consumer staples. The sector tends to be defensive with high recurring revenues that didn't encourage investors to pressure stock prices low relative to other companies during the recession, so we believe better growth opportunities exist in other sectors where asset prices are still rebounding back to normalized earnings and valuation levels.
-- 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.