Big Mo With Less Risk
This fund manager has a penchant for weeding out the chanciest stocks.
Call it a momentum strategy with a twist. Shawn Price, manager of Touchstone Large Cap Growth (symbol TEQAX for A shares; 800-669-2796; 5.75% sales charge), chases companies with rapidly rising earnings and stocks that are outperforming the market. He also screens stocks for volatility and eliminates the riskiest ones. "We want quality, not just hype, so we're obsessed with risk control," says Price. Over the past year to December 1, the fund gained 16%. Price's favorites include:
Apple Computer (AAPL). Talk about momentum. Thanks to the remarkable success of the iPod and demand for its computers, Apple saw profits soar 384% in the year that ended last September. Shares of the Cupertino, Cal., company jumped 131% in the past year and more than 11-fold since the spring of 2003. The stock sells at 41 times the $1.83 per share that analysts see Apple earning this fiscal year, according to Thomson First Call. Given Apple's rapid growth, Price believes that's a reasonable price.
Chicago Mercantile Exchange (CME). Another missile. The stock of the nation's first publicly traded exchange has soared more than eight times since it went public in late 2002. At $360, CME sells for 33 times estimated 2006 earnings of $10.75 per share. The largest futures clearinghouse in the U.S., the Merc facilitates the trading of instruments that allow investors to hedge against, or profit from, volatility in stocks, interest rates, foreign currencies and commodities. Thanks to increased trading in each of these areas, profits rose 42% in the first nine months of 2005 compared with the year-earlier period.
Prudential Financial (PRU). The Newark, N.J., company is known for life insurance, but other businesses are sparking growth. Among them is a thriving international insurance unit that operates in more than 30 countries but focuses on Japan and Korea. Also performing well is Prudential's investment arm, which includes a retirement-services division and a retail brokerage operated in partnership with Wachovia. Pru earned $3.2 billion in the first three quarters of '05, a 90% gain from the same period in '04. At $76, the stock has tripled in the past three years and now trades at 14 times the $5.52 per share that analysts expect Prudential to earn in 2006.
UnitedHealth Group (UNH). The nation's second-largest health insurer casts a wide net, serving businesses and individuals, as well as providing medicaid services for state governments. UnitedHealth has been aggressively buying up rivals during the past decade. UnitedHealth's latest deal the $8-billion purchase of PacifiCare Health Systems is its largest yet. The buyout, likely to be completed in early '06, will give the Minnetonka, Minn., company better access to West Coast seniors, "an aging population with a lot of disposable income," says Price. The stock, at $64, sells for 22 times estimated 2006 earnings of $2.92 per share.