Go for the Green
The managers of Winslow Green Growth fund look for big profits in small, eco-friendly firms.
The managers of Winslow Green Growth fund prefer environmentally responsible companies. Among other things, say Matt Patsky and Jack Robinson, green companies are far less likely to be fined or sued for fouling the air or the water. "It's an incredible litmus test for quality in management," says Patsky. Over the past three years to November 1, Winslow Green Growth (symbol WGGFX; 888-314-9049) returned an annualized 34%. Among the managers' favorite stocks:
AQuantive (AQNT). As advertising dollars flock to the Internet, one beneficiary is Seattle-based aQuantive, which operates the largest Internet-ad firm, Avenue A/Razorfish. Advertisers call on aQuantive to design, place and monitor online campaigns. "AQuantive has it all under one roof -- and that's compelling in terms of a competitive advantage," says Patsky. Revenues in the first nine months of 2005 rose 127% from the same period in 2004. At $25, the stock, which has doubled since May, sells for 43 times the 59 cents a share analysts expect aQuantive to earn in 2006, according to Thomson First Call.
Durect Corp. (DRRX). This is a development-stage company working on drug-delivery systems that offer "cheaper, better, faster drug technologies to control pain," says Robinson. It has five products in clinical trials, including a patch that releases pain-relief medication to surgical wounds for several days. Expenses for research and development at this stage far exceed Durect's minuscule revenues, so Durect won't make money until its products win government approval. Analysts see the Cupertino, Cal., company losing 36 cents per share in 2006. The stock, $2 a year ago, now trades at $5.
Green Mountain Coffee Roasters (GMCR). Increasingly, coffee drinkers are willing to spend more for organic blends that comply with trade standards that guarantee coffee growers a fair minimum price. This Waterbury, Vt., roaster has the largest market share in the combination of organic and fair-trade coffee; it sells its 100 blends of coffee to grocers, convenience stores and gourmet markets. "This is a high-growth and very profitable relationship," says Robinson. Green Mountain expects 22% to 28% sales growth in the fiscal year ending next September. The stock is up 69% over the past year, to $40, and sells for 31 times estimated fiscal '06 earnings of $1.28 a share.
Sonic Solutions (SNIC). If you burn CDs on your PC, you're probably using software made by Sonic. The Novato, Cal., company is the leading supplier of software for CD and DVD burners to computer manufacturers. Sonic entered the retail market in 2004 when it bought Roxio, which sells the software directly to consumers. Roxio has already given Sonic a huge boost, Patsky says. The company expects revenues to surge as much as 64% in the fiscal year that ends next March, to as much as $149 million. The stock, at $15, sells for 18 times estimated earnings of 84 cents per share for the current fiscal year.