The Search For Faster Growth

Larry Jones of NCM Capital Management prefers stocks with earnings that outpace industry peers

In the stock market, change is not to be feared. After four years with The Kenwood Group Inc. in Chicago, last year, Larry Jones moved over to NCM Capital Management Group Inc., ranked No. 1 on the 2001 BE ASSET MANAGERS list with $6 billion in assets under management. Jones now serves as NCM Capital’s chief investment officer. He supervises a staff of research analysts and portfolio managers for the Durham, North Carolina, firm.

Although the firm manages growth, value, large-cap, and mid-cap products, Jones’ Private Screening picks come from NCM Capital’s growth-investment philosophy: growth at a reasonable price. “We want companies that demonstrate superior growth vs. their peers, faster than the general rate of growth in the economy and faster than the trends in corporate profits for the entire economy,” explains Jones.

Jones says he has about 55 companies in the portfolio he manages. His selections typically have a market capitalization of $1 billion or more, a Standard & Poor’s stock quality rating of “B” or better, and have garnered higher than expected earnings over the past 12 months. (The S&P quality rating uses earnings, sales, and dividends to measure earnings stability by rankings from A+ to D.)

Jones’ first choice is Veritas Software (Nasdaq: VRTS), the dominant software company in enterprise storage. Selling at $44.83 in January, Jones believes the firm will benefit as corporations shift from mainframe computers to client servers. Veritas, which had a high of $108.75 a share last year, recently signed a deal to distribute its software on IBM’s storage products, and that could help it reach $63 in 12 months.

Siebel Systems (Nasdaq: SEBL), another software provider, should also do well. Jones says Siebel’s customer relations software, which allows secure access to inventory, sales orders, and databases over the Internet, is in demand. A newly released version of the software could move the stock from $34.15 in January to $45 in 12 months.

Jones also likes Stilwell Financial Inc. (NYSE: SV), best known as managers of the Janus and Berger mutual funds. Although the firm, which sold as high as $46.63 last year, lost assets as the market declined, “We expect them to recover nicely as the market rallies and the growth style comes back into favor,” says Jones. Selling at $27.29 in January, it could move to $35 in 12 months.

Pharmaceutical giant Eli Lilly (NYSE: LLY) has one of the best research pipelines in the business. “We look for it to bring 10 new drugs to the marketplace in the next three years,” says Jones. These drugs are expected to tackle osteoporosis, clinical depression, and male impotence, which should push the stock from $77 in January to $90 in 12 months.

Jones also believes retailer GAP Inc. (NYSE: GPS) could make a comeback. The company’s 3,700 stores did better than expected this past Christmas season, giving an indication that “if their new merchandising is successful, the company should get back on the growth track.” Selling at $15.55 in January, the firm could move to $20 in 12

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