Earnings growth redefined

Michael Manns' picks benefited from real expanding businesses

With the recent meltdown of some formerly red-hot technology shares, investors have come to appreciate companies that have–dare we say it?–actual earnings and strong fundamentals. One such investor is Michael Manns, a senior portfolio manager for American Express Asset Management in Minneapolis. He studies how companies grow their earnings, valuing firms that boast strong management and a 15% or greater annual earnings-growth rate.

Manns’ Private Screening picks from last year rose an average of 41.24%, as of April 28, outperforming the Standard & Poor’s 500-stock index’s return of 8.8% for the same period. In first place: Cisco Systems (Nasdaq: CSCO), which dazzled investors with a triple-digit gain of 143.09%. Next in line: General Electric (NYSE: GE) and financial services giant Citigroup (NYSE: C) posted double-digit returns of 50.97%, and 19.51%, respectively.

Internet expansion and the ever-popular infrastructure sector helped propel Cisco Systems. As expected, Manns will continue his long-term hold on Cisco. “I am willing to pay more for companies that dominate attractive market segments,” he said. “The company has a dominant share of the network equipment segment, which fuels Internet growth.”

Interest-rate worries continue to plague financial services stocks, but Citigroup’s restructuring efforts, combined with its global reach, helped the company weather the volatility.

Some high-profile corporate departures failed to shake the company. The most prominent: when Citigroup co-chairman and Chief Executive John Reed announced his April retirement on February 28. Reed reportedly lost a power struggle with fellow Co-chairman Sanford Weill.

GE also successfully repositioned itself, expanding beyond its industrial base to include financial services such as GE Capital. The stock gained 50.97%, since Manns’ recommendation.

Competition from online grocers, such as Web Van and Home Grocer, knocked Safeway’s (NYSE: SWY) shares down 18.19%. But Manns continues to be optimistic. The Pleasanton, California-based grocer operates 1,659 stores in the U.S. and Canada. The company plans to launch its own e-commerce initiatives, which should help the stock rebound. Safeway’s other strategies include the continued popularity of its private label brand, Safeway Select, which is expected to boost growth.

As for Pfizer (NYSE: PFE), on February 7, the pharmaceutical behemoth succeeded in its $91 billion hostile takeover bid of Warner-Lambert, toppling the planned merger between Warner-Lambert and American Home Products. Manns casts more blame on higher interest rates and a less benign legislative environment toward the pharmaceutical industry, rather than the pending mega-merger, for the stock’s bumpy ride last year. Despite its woes, Pfizer’s shares managed to increase 10.84%.

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