Growth Stocks Regaining Favor

Growth stocks are back in vogue this year, according to Dow Jones.   The past few years, value stocks have been all the rage. “We’re making a bet that growth is going to outperform going forward,” said James Diedrich, who oversees First American’s Mid-Cap Growth Opportunities Fund.   The portfolio is now weighted toward stocks whose earnings are expected to grow faster than the overall economy. However, managers of the fund are very particular about what stocks qualify for the portfolio. “Durable growth is just worth much more,” said co-portfolio manager Hal Goldstein. “We’d rather have something that grows less quickly if we believe it can grow at that pace for a number of years.”   Managers of the fund put the stocks through a vigorous screening process. They search for companies with market capitalizations of between $1 billion and $15 billion that fit earrings, liquidity, return on invested capital and free-cash-flow growth parameters and hold a sustainable competitive business advantage.   Rather than trying to fulfill a sector quota, they concentrate on picking individual stocks and let those choices largely determine sector weighting. The portfolio is underweight on consumer discretionary issues. Diedrich said, “We just can’t find many names we like.” The fund is also light on utilities and materials.   The fund’s biggest holding as of March 31 was Thermo Fisher Scientific, a blend of Thermo Electron and Fisher Scientific, two companies whose shares the fund had owned prior to their merger. “We like it because it’s got a leadership position,” said Goldstein. “It’s not a super-fast grower,” he added, but predicted mid-single-digit or better top-line increases as it generates significant free-cash flow.   Recently, among the fund’s biggest disappointments were Harrah’s Entertainment and Station Casinos. Year-to-date from last week, the fund returned 13.07%, compared with the benchmark Russell Midcap, which is up 12.01%, according to Lipper.   The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.