Growth After a long dry spell, our growth gurus are on a serious roll
By Adrienne Carter

(MONEY Magazine) – Growth is back. That's the inescapable conclusion of three of the very best growth-oriented money managers around: Thomas Marsico of Marsico Funds, Jim Oelschlager of Oak Associates and Richard Driehaus of Driehaus Capital Management. It is a confidence backed by the 25%-plus gains that investors have enjoyed in their flagship funds since the start of the year. Those are great numbers, true--but what we really care about is what these guys are excited about investing in going forward. Read on for a discussion of their best picks.


Thomas Marsico made his name by posting dramatic, market-beating numbers, starting in 1988 at Janus Twenty and later at his own Marsico Focus fund. During that 15-year run, Marsico has thrived, in part by spotting strong macroeconomic trends and the stocks poised to benefit the most from them. Today he's emphasizing economically sensitive companies that should get a boost from growth in the gross domestic product, which he pegs at 5% for this quarter and next vs. 3.1% and 1.4% in the previous two quarters.

Media companies are particularly well positioned as advertising returns, he says. His No. 1 pick in the industry: Viacom (VIA.B); he's plowed about 4.5% of Focus' assets into the stock. Sporting top brands like MTV, Nickelodeon and CBS, at $45, Viacom produces outsize cash flow: $3 billion last year, for example, on $25 billion in sales. Viacom is up about 3% since January (vs. 11% for the S&P 500) and trades at 26 times next year's expected earnings (vs. 18 for the S&P). Marsico, who started buying the stock last year and often holds his picks for three to four years, believes Viacom has plenty of room to run.

Marsico is equally fond of SLM (SLM), the leading provider of educational loans. Sallie Mae, as it's more commonly known, should reap the benefits of ever-higher demand for education, ever-rising costs and ever-shrinking government assistance for students, he explains. Marsico thinks Sallie Mae can easily improve earnings at a 12% to 15% annual rate over the next five years, making the $39 stock a good buy at its current P/E of 19 (based on estimated 2004 earnings).

Jim Oelschlager BUYING TECH

White Oak Growth's Jim Oelschlager is convinced that the U.S. is in the early stages of a technology revolution on the order of the Industrial Revolution in the late 19th century, one which will improve earnings, wages and the country's quality of life. He argues that it will also create a prolonged period of low interest rates and low inflation.

Oelschlager often has 50% or so of his fund in technology stocks. Applied Materials (AMAT), which he first bought back in 1997, remains a top holding. One of the few technology firms with a 30-year history, the semiconductor equipment manufacturer dominates its industry with 45% to 60% market share in key sectors. And while the technology slowdown has hurt profits, explains Oelschlager, business is improving. In the most recent quarter, Applied Materials reported $1.05 billion in new orders, up 9% from the previous quarter. Furthermore, it has cut costs dramatically, which should help the bottom line. He says investors should not be deterred by the hefty valuation--at $22, the stock trades at nearly 48 times 2004 earnings--because when earnings are weak, as they are now, product-cycle-dependent companies like Applied Materials typically look expensive. As earnings ramp up, the P/E should drop.

One of Oelschlager's newest picks is drug distributor Cardinal Health (CAH), which has posted 20% or more earnings growth in each of the past 15 years. The middleman between drugmakers and pharmacies, Cardinal doesn't need to create its own blockbusters to produce strong profit growth. Yet it can benefit from demographic trends as more people are treated with drugs instead of surgery. Management's July announcement that its earnings growth rate could decline to the mid-teens in the next year put pressure on the stock, creating a good buying opportunity at $56. (Oelschlager bought it last year in the mid-$60s).

Richard Driehaus GO FOR MO

Richard Driehaus is a master of momentum investing who talks almost as fast as he trades. More focused on emerging companies than on established market leaders, Driehaus bought Southwest Airlines back in 1975 and Home Depot at its IPO.

Right now, Driehaus is a devotee of United Online (UNTD), a low-cost Internet service provider. United offers Web access at around $9.95 vs. $23.90 from leader America Online. In the most recent quarter, it beat earnings estimates by 10% and added some 142,000 subscribers. "AOL is losing customers," says Driehaus, "but this company is gaining market share. It could be the Wal-Mart of the business." The $1.6 billion (market cap) firm recently hit a 52-week high of $40, but the Chicago-based fund manager is undeterred by the run-up. "Earnings growth is the crucial factor in stock prices," he says. (Investors should stay on the alert: At the first sign of bad news--say, a negative earnings surprise or a downward earnings revision--Driehaus wouldn't hesitate to sell.)

Driehaus is also jazzed about JetBlue Airways (JBLU). Like pioneer Southwest, $3.8 billion JetBlue operates a low-cost, low-fare airline. But the company is distinguishing itself with its service, providing perks like leather seats and live satellite television for all of its passengers. During a time when many airlines are facing bankruptcy, JetBlue managed to report earnings per share of 55¢ vs. 22¢ for the previous year. --A.C.