Breakthroughs in understanding of the human genome will result in a flow of new products. Isaly is underweight the big pharmaceutical companies because they have failed to discover many blockbluster drugs lately. "The sales of the big companies are shrinking and their organizations are shrinking," he says.
A holding is Gilead Sciences ( GILD), a biotech that is increasing revenue at a 14% annual rate. The company is a leader in the treatment of HIV. Another holding is Roche ( RHHBY), which owns Genentech, a leading biotech producer of cancer drugs. Live Oak manager Mark Oelschlager looks for unloved companies that have the ability to grow over the long term. He only has 3% of assets in biotech. "Investors are all excited about biotech, and they are neglecting the slow plodders," he says. Oelschlager likes to find companies with predictable earnings streams. A favorite holding is Stryker ( SYK), which makes surgical equipment and implant systems used to repair hips and knees. "This is a dominant company with a very high return on equity," he says.
The slow economy has hurt Stryker's sales, as people postpone elective surgery. But Oelschlager says that the company will continue to achieve long-term growth as an aging popular seeks more medical procedures. Another holding is McKesson ( MCK), which distributes drugs to hospitals and pharmacies. The company is increasing growth by selling software that hospitals can use to automate their operations. Follow @StanLuxenbergThis article is commentary by an independent contributor, separate from TheStreet's regular news coverage.