When it comes to picking growth stocks, portfolio manager Stephen Humphrey wants it all: dominant players from economies past, present, and future.
“The kinds of companies I like to own beat the socks off the competition,” says Humphrey, executive vice president of Lord Abbett & Co. in Jersey City, New Jersey. Humphrey runs the $30 million Lord Abbett Large-Cap Growth fund (Nasdaq: LALCX), an institutional portfolio just offered to retail investors in February. And as part of his strategy to participate in as many areas of the growth-stock universe as possible, he’s divided the portfolio into three segments.
About 40% of his fund is composed of Old Economy blue chip stalwarts that are using technology to better compete in the New Economy. Then there are the “nouveau” dominant firms in high-growth areas such as computer software, which were emerging companies 25 years ago; he has about 50% of the fund in those names. And in a gamble to find the next Microsoft, the final 10% of Humphrey’s portfolio is in emerging growth stocks.
In addition to market leadership, companies need to have at least 10% earnings growth and 20% or greater revenue growth and a minimum market capitalization of $8 billion.
He likes Corning (NYSE: GLW). Formerly known for its glassware operations, the Corning, New York-based company has remade itself into the dominant provider of fiber optic equipment designed to increase bandwidth. In fact, telecommunications applications make up about two-thirds of Corning’s business, Humphrey says. Its other growth divisions include the advanced materials unit and its information display business, which, among other products, manufactures flat-panel screens for laptop computers. Corning’s earnings-per-share growth of 39% last year also makes it a stock to own, he adds.
General Electric (NYSE: GE) “will be the largest Old Economy company to dominate the Internet,” says Humphrey. Thus, it fits his definition of a venerable titan making the transition to a New Economy paradigm. The Fairfield, Connecticut, conglomerate owns a host of businesses, from financial services to broadcasters. Its move to the Internet (prompted by competition) will help it build on its impressive sales and earnings gains.
Humphrey notes that EMC (NYSE: EMC), as “the dominant integrated-storage solution firm,” should continue to benefit from the incredible growth in the volume of transactions on the Internet, which are estimated to double every 100 days. EMC, based in Hopkinton, Massachusetts, enjoyed revenue growth of 25% and EPS growth of 50% last year.
And it wouldn’t be a growth-stock portfolio without Humphrey’s last two picks: former emerging growth companies Cisco Systems (Nasdaq: CSCO) and Microsoft (Nasdaq: MSFT). In addition to its commanding presence in the enterprise network and Internet infrastructure sectors, San Jose, California-based Cisco is moving into the service-provider area, where it should take market share from Lucent Technologies (NYSE: LU) and Nortel Networks (NYSE: NT). Also, the possible breakup of Microsoft doesn’t concern Humphrey. The Redmond, Washington software colossus still has room to grow in other businesses, such as the Internet software arena.