NEW YORK (CNN/Money) -
Janus manager Ron Sachs doesn't understand what the fuss is about.
Sure, Janus has a reputation for being a high-voltage growth shop. Sure, he runs a growth fund, Janus Orion, whose mandate is to find the fastest-growing stocks on Wall Street.
So what if Berkshire Hathaway -- the company headed by famed value investor Warren Buffett -- is one of his top holdings? Or Halliburton, the oil-services firm dogged by asbestos claims? Or hospital operator Tenet Healthcare? That's where he's finding the best bang for his money -- not a Cisco or a Nokia.
"The companies delivering the best growth are certainly different," Sachs said. "But growth investing hasn't changed."
A rose may be a rose by any other name, but the line between what people used to consider growth and value stocks is getting fuzzy. Many leading growth fund shops such as Janus, Marsico, Brazos, Putnam and AIM have been moving into former value areas such as financials, health care, auto makers and home building companies.
What makes a growth stock?
Value has outperformed growth by a wide margin ever since the bear market arrived in 2000.
But Sachs insists that Janus isn't doing anything differently -- and isn't buying value stocks in a chase for good returns. A good growth manager, he said, looks for companies that will create value over the next couple of years.
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There is no official definition of growth and value. Growth fund managers typically look for companies with rapidly growing earnings and revenues. They feel justified paying premium valuations because the companies are growing so fast. Value managers are more cheap, judging a company's worth based on any number of factors, including sales, earnings, and assets, and then being as stingy as possible.
In the late 1990s when corporate technology spending was soaring, growth meant tech and telecom. Value was everything else -- the boring energy stock, the sleepy defense contractor.
Sachs said his fund was much heavier on tech when he launched it in June 2000. He sold off names like Cisco and Nokia, and even shorted the Nasdaq 100 in the last quarter of 2001.
Now, he has less than 5 percent of the portfolio in technology. "I can find faster growth at better multiples with better business franchises," said Sachs.
Instead, he focuses on strong businesses with great managements that are responsive to shareholders. Besides Berkshire, that's lead him to Hispanic Broadcasting, a Spanish radio broadcasting network growing 50 percent faster than a mainstream broadcaster. In financials, Sachs thinks companies such as Lehman Brothers and Goldman Sachs have promising long-term growth prospects in global markets, even if they look weak now.
Orion, with $650 million in assets, is down 7.5 percent, compared with a loss of about 3.9 percent for the S&P 500.
Sachs isn't alone
Tom Marsico, manager of Marsico Focus and Marsico Growth, said he looks at different variables for different stocks in his search for growth. The former star manager of Janus Twenty, Marsico left the firm in 1997 to start his own funds. While Marsico has owned his share of tech -- Marsico Focus had 8 percent of its portfolio in Qualcomm back in 1999 -- his lineup looks much different now.
In defense, for example, Marsico saw a great deal of promise long before Sept. 11. There was widespread consolidation in the industry, which would help boost profit margins and growth rates. Plus, the nation's fleet of planes, tanks, submarines and ships were getting older. Defense Secretary Donald Rumsfeld talked about how the American forces would undergo a transformation. So Marsico started buying Lockheed Martin and General Dynamics.
Both Lockheed and General Dynamics are trading near their 52-week highs, and their projected earnings growth for the next five years is 10-to-12 percent a year.
Within the auto industry, Marsico liked what he saw in General Motors. The company brought in new hires in production and cleaned up its balance sheet. It was stealing market share from DaimlerChrysler and Ford. Plus, he said, in an age of disposable wealth, plenty of people are buying more than one car -- a wagon to get to work, a sleek roadster with a convertible top for the weekend.
Marsico said he had no money at all in technology until recently (though he's not saying what he's buying or how much.) Rather, his core growth stocks include hospital operator Tenet HealthCare, Wal-Mart, and Pepsico -- all trading near their year-highs, with expected earnings growth of 13 percent-to-18 percent a year in the next five years. (Healthy growth, to be sure, but far short of the 30 percent rates many were expecting for tech companies just a couple of years ago.)
Marsico Growth, with $684 million in assets, is up 4.8 percent, and Marsico Focus, with $1.4 billion in assets, is up 6.1 percent year to date as of May 16, according to Morningstar. With the average large growth fund down 7.5 percent in the same time, it puts Marsico's funds near the top of the large-growth category.
Bridget Hughes, a Morningstar analyst, points to other growth funds moving into unusual territory. Brazos, a well-known small-cap growth fund shop, has been buying home builder stocks such as Centex, while AIM Funds bought another new favorite of growth managers, clinical lab Quest Laboratories.
Putnam Voyager, a growth fund that is one of the 20 largest 401(k) funds, counts Philip Morris as a top holding, another former favorite of value managers. (For more on Putnam and other big 401(k) funds, click here.)
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