Putting the "growth" in "growth and income"

TIAA-CREF's Carlton Martin's stock picks sizzle

Carlton Martin, the portfolio manager who hunts down fast-growing stocks for TIAA-CREF’s Growth & Income fund, set his sights on five stocks for Private Screening last year and they’ve paid off, with most scoring double-digit returns and one soaring almost 100% (“Searching Hot Sectors for Big Gains,” Moneywise, October 1998). As he stated when be interviewed him last October, Martin “looks for the number 1, 2 or 3 company in an industry,” one with proprietary technology or unchallenged by internal and external forces Topping the list of big gainers, Nokia (NYSE: NOK.A), the Finnish maker of cellular telephone equipment and infrastructure, soared 93.46%. As for the other four stocks, MCI Worldcom (Nasdaq: WCOM) shot up 56.4%; Lucent Technologies (NYSE: LU) jumped 37.18%; AT&T (NYSE:T) gained 37.2% and DuPont (NYSE: DD), the “laggard” of the group, rose a respectable 14.85%. Meanwhile, the S&P 500 rose 19% in the same period. All five stocks had a cumulative average return of more than 50%.

Martin’s fund still holds all five stocks but DuPont is no longer among its top 10 holdings. “In some cases where stocks have appreciated an awful lot, from time to time we will cut back on our positions,” he says.

Nokia appears to be well on its way to living up to Martin’s October prediction that the company would “conservatively” grow earnings at a 15% to 20% annual rate. In June the company bLew past analysts’ estimates of a 24% rise in second-quarter earnings, with a net profit of over $600 million (based on the exchange rate as of June 30, 1999), a gain of 61%, according to industry sources.

But all isn’t so rosy at MCI Worldcom, which recently announced a new unit to manage its $1 billion operation providing services to business customers. Analysts have trimmed their estimates for the company’s year-over-year revenue growth and predict a price war in the long-distance industry. MCI WorldCom’s stock has also suffered amid reports that the Justice Department will launch an antitrust investigation of its undersea cable business.

Martin is keeping mum this year because of a corporate policy at the New York investment firm prohibiting him from providing more specific information on their stocks aside from confirming their top holdings. But Martin will say that he is still looking for companies with leading proprietary and technological positions in their business franchises, strong cash flow and management that demonstrates a shareholder orientation. Managers should show they’re “trying to increase value for the shareholders rather than trying to perpetuate themselves,” he says.
Martin still likes the telecommunications sector because of the rapid changes taking place in it. He also still likes pharmaceutical firms, citing a continuing need for their products, particularly among aging baby boomers.

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