Top stock picks from top pros
They racked up some of the best fund returns of the Lost Decade by sticking with this simple strategy: Buy quality. Here's where they see opportunity now.
His picks: Advent Software and Royal Caribbean Cruises
"Advent produces software that's used by banks, money-management firms, and brokerages. The company is 15% international now, but it's making a big effort overseas," says Aster, who has been the fund manager for 26 years.
"As international markets become more sophisticated, advent should do very well. it is also helped by increased regulation over markets in the U.S., since firms are required to keep better records.
"The cruise industry expanded over the past several years -- in a weak market. So Royal Caribbean had to run discounts to fill its ships. But the expansion has slowed and demand has improved, allowing the company to charge higher rates. Roughly 45% of Royal's business is international, and these shares are not expensive."
His strategy: Aster typically looks for companies with an earnings growth rate of 15% or more. But he won't buy at any cost. "you're not going to find in our portfolio a bunch of stocks priced at 50 or 60 times earnings," he says. (The fund's average P/E ratio is around 20.)
In part owing to Davidson's price consciousness, Meridian Growth has tended to lag in hot markets: During the dotcom run in 1999, when stocks of fast-growing firms were on a tear, the fund returned 13%, while the S&P 500 gained nearly twice as much.
Yet Aster's strategy minimizes losses. When stocks tumbled in 2000, his fund was up 28%. And in 2008, Meridian fell 30% while its peers dropped 44%, on average.
Where he sees opportunity: "A lot of companies have grown their earnings by cutting costs. But this can't go on forever," says Aster. "There has to be demand." So like Holland's Walker, Aster is looking for businesses that have significant market share in the U.S. and growth potential internationally.
"Our largest area of concentration right now is technology," Aster adds. "Specifically, we're heavily weighted in software companies. Developing economies are going to need automation to become more efficient, which will benefit these firms. The stocks aren't as cheap as they were a year or two ago. But they're also not as extreme as they were in the late 1990s."
NEXT: Richard Dahlberg & Scott Davis
