DJ TIP SHEET: Tech, Energy Stocks Among Emerald Mid-Cap Picks
May 20, 2009
Emerald Advisers managing director David Volpe and portfolio manager David Chu pick companies more than sectors, although they've been reducing investments in health care and moving toward technology, consumer discretionary and industrial stocks, including energy.As of March 31, their portfolio had lost 4.41% gross year to date, before subtraction of fees, compared with an average 4.92% loss for separate-account mid-cap growth portfolios as a group and a 3.36% loss for the Russell Mid-Cap Growth Total Return benchmark index, according to Morningstar.
The investments had lost 35.57% over a year, better than the 37.18% average loss for the peer group and 39.58% loss for the Russell Mid-Cap Growth index. The Emerald Advisers' mid-cap growth separate-accounts portfolio also performed better over three years, with an annualized loss of 11.90%, compared with a loss of 13.50% for the group and 14.89% for the index.
Volpe and Chu have about 10 mid-cap accounts with $65 million in assets under management in their portfolio, which the firm launched more than three years ago.
Their favorite stocks include Stericycle Inc. (SRCL), a medical-waste disposal company near Chicago.
"They pretty much dominate" the medical waste market, Chu said. The company meets Emerald's preference for stable companies with high return on invested capital and healthy growth in revenue and cash flow. The company should be able to sustain earnings-per-share growth of 10% to 15%, Chu said.
The Emerald mid-cap managers also like Whiting Petroleum Corp. (WLL) of Denver, which Volpe called a premier oil exploration-and-production company with some of the largest shale oil wells in the U.S. Driving its growth are wells in the Bakken Formation, a huge shale deposit, in North Dakota, he said.
"We like the name a lot," Volpe said, noting rising oil prices. "This is a name that is very, very leveraged to increasing oil prices," he said. The stock has performed well in the last year and has the potential for "substantial appreciation" if oil stays around $55 a barrel, Volpe said.
Cognizant Technology Solutions Corp. (CTSH), a global technology outsourcing company with major corporate customers in various industries, is another Emerald mid-cap favorite.
"This is one where our fundamental research has really paid off," Chu said, noting that the firm invested in the company at least 10 years ago when the market cap was around $700 million. Now the market cap is more than $7 billion, and Chu expects healthy long-term growth for the company. The Emerald managers think Cognizant will be one of the first beneficiaries of increased technology spending when the economy starts to improve. (Dinah Wisenberg Brin covers the health-care industry for Dow Jones Newswires. She can be reached at 215-656-8285 or by email at dinah.brin@dowjones.com.) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=NhwuopvAd7kMEIhzm4B3dA%3D%3D. You can use this link on the day this article is published and the following day.
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