Forester: Focus on Top-Line Growth in '09

Of the 2,800 U.S. stock funds tracked by Morningstar, only the Forester Value Fund ( FVALX) finished in the green last year.

"We really watch the downside," says fund manager Tom Forester. "We had seen the housing bubble coming so we were able to avoid financials. And we overweighted consumer staples and health care stocks which do well in recessions."

Forester's attention to detail -- and defense -- paid off in 2008. His $60 million fund was up almost half a percent last year compared with a more than 37% drop in the S&P 500. Unlike the index, Forester has the option to move funds into cash, something he did at key junctures during last year's rocky trading. He also keeps fund fairly concentrated holding between 40 and 50 stocks in total, so it's not for the faint of heart.

Over the past three years, the fund has lost an average of 2.5% per year, almost 9 percentage points better than the market. His five-year average return is 3.6%, which is 7.5% better than the S&P 500, enough to merit him a full five stars from Morningstar.

Top Fund Manager's Top Picks

Two of his best performers in 2008, McDonald's ( MCD) and Wal-Mart ( WMT), were also the only two Dow stocks to finish the year in positive territory. And Forester expects their outperformance to continue as consumers trade down.

"People still like to go out for meals but in recessionary times they trade down as far as price points go," says Forester. "So McDonald's fits that perfectly. They've changed their menu. They've gone more to salads. They've gone more to wraps. They have gourmet coffee now. So they are doing quite well."

Forester is also fond of Pfizer ( PFE) in 2009. The fund manager likes the pharma's valuation, its dividend yield and the pile of cash it keeps to fill its pipeline.

"The fact that their pipeline was smaller is already in the stock right now," says Forester. "Anything they get in addition in their pipeline is all gravy to me. It's selling at a cheap valuation, it's got about an 8% dividend yield and they've got plenty of cash to go shopping at bargain prices to buy companies with strong products."

Another cash-rich company that Forester is sweet on is Microsoft ( MSFT).

"Microsoft has a lot of flexibility in their balance sheet. Things are starting to get cheap out there if you want to make an acquisition," says Forester. "One thing that they looked at last year was Yahoo! ( YHOO) and that seems to be getting cheaper every week."

Looking out to 2009, Forester expects the first six months to "a little dicey" as the banking industry contracts. But he expects a second-half bounce once consumers regain their footing. His advice is to stick with high-quality companies in the short term, then take more risks as summer approaches.

How does last year's top fund manager define high quality? Forester says he concentrates on top-line growth.

"The hardest thing to control is your top line," says Forester. "When a company starts losing their sales they start cutting things and you don't know what's going on. So you want to find stable top lines and that will tell you where the stable companies are."

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.

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