Size Matters

Asset Manager James N. Nelson III likes big companies destined to grow even bigger

James N. Nelson III says do your homework and you’ll find low-risk investments that can grow in a sluggish economy. In fact, Nelson’s banking the success of Aspire Investment Group, a Philadelphia-based asset management firm he started late in 2009, on that very premise.

The money manager believes the recipe for success is to find big companies with market capitalizations above $2 billion that are more likely to withstand market fluctuations and survive economic shocks. Long track records are important, too. Nelson takes a long-term approach and focuses on companies that have grown earnings on average 12% over a business cycle (which is usually three to six years). He looks for good stories, too. He’s particularly fond of companies with a dominant stake in their market and barriers to entry to fend off rivals. He talked to Black Enterprise about some of his current favorites.

1 Costco (COST) The $78 billion discount warehouse retailer meets Nelson’s standard with 12% to 13% earnings gains expected in the next three years thanks to a chain of 560 outlets and steady expansion. Costco also has an edge on competitors Sam’s Club and BJ’s, says Nelson, because “they’re probably the best managed wholesale warehouse,” he says. “They have a high return on investment and can essentially collect money in sales before they pay suppliers.” The bottom line, however, is Costco’s appeal to an increasingly frugal American marketplace. “In this environment, with an economy going sideways for the next several years, companies built on value for consumers are going to win,” Nelson says.
PRICE: $67  •  P/E: 22.88

2 ResMed Inc. (RMD) ResMed develops and manufactures products to treat sleep-disordered breathing and other respiratory ailments. The $1.09 billion company is straddling a potential blockbuster market. The numbers are staggering, Nelson says. ResMed serves 1 million customers, but at least 5 million people have sleep apnea, a condition associated with ailments such as high blood pressure and diabetes. It’s estimated that there are more than 45 million undiagnosed cases of sleep-disordered breathing around the world. ResMed’s only competitor is Resperonics, which means that there’s little to prevent ResMed from achieving profit growth of 15% or greater in the next three years.
PRICE: $32  •  P/E: 24.31

3 Citirix Systems (CTXS) Citrix’s software lets workers share computer programs and work collaboratively across networks and over long distances. The stock is a play on virtual, mobile computing—and today’s economic realities. “The company makes it possible for businesses to do a lot more with less,” Nelson asserts. “Citrix is marketing cost-effective solutions that work with computers and mobile devices. They have either a majority market share or position as number two or three for most of their product line.” An exclusive partnership with Microsoft helps stave off competitors and create a wide “moat” around Citrix products. That’s reason enough, says Nelson, to project that 15% earnings growth over the next three to five years is within reach.
PRICE: $68  •  P/E: 46.24

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