The big challenge this year as opposed to other years is how much will opposing forces interfere wit...
11/14/2014 10:00 am EST
Peter Tuz, of Chase Investment Counsel, discusses his firm’s focus on sustainable growth and earnings. He also looks at one standout sector—healthcare—along with a trio of health-related stocks that rank among his favorites.
Steven Halpern: Our guest today is Peter Tuz, President of Chase Investment Counsel and the co-portfolio manager of both the Chase Growth Fund (CHASX) and the Chase Mid-Cap Growth Fund (CHAMX). How are you doing today, Peter?
Peter Tuz: I’m doing well, thank you.
Steven Halpern: Well, thank you for joining us. Your investment strategy is based on a blend of both technical and fundamental factors. You seem to find fast growing companies with consistent earnings, rising stock prices, and sustainable growth. Could you explain how you put that strategy together in your portfolio decisions?
Peter Tuz: Sure, yes. You know, we have two key hurdles, I guess, and one you mentioned was consistency. We like to see companies that have had up years in earnings in seven out of the past ten years and then growth—which to us means a compound rate of growth in earnings of 10% or more—for the past five years.
We like to run fairly concentrated portfolios both in the large- and mid-cap space with, I’ll say generally from 35 to 45 stocks in the large-cap portfolio and 40 to 50 stocks in the mid-cap portfolio. That way, you still get a lot of diversification so one bad stock pick doesn’t hurt you, but it does allow for each individual stock to make a difference in the portfolio.
We also like to diversify by sector and by industry group. We believe a lot in diversification. You know, our, kind of, mantra is to get most of the markets upside, when it’s going up, but less of its downside when it’s falling. Our process has been kind of developed with this in mind and we have used it for more than 30 years now.
Steven Halpern: So, based on this market approach, what would you consider to be a couple of the better sectors for investors to be considering right now?
Peter Tuz: You know, I think the healthcare sector has always been a fertile ground for opportunity for us, as growth stock investors. Consumer discretionary, generally, historically has been pretty good for us, as well as technology.
Steven Halpern: So you mentioned the healthcare sector. Let’s look at several of your current investment ideas within that sector to give our listeners an understanding of how you come down to individual stocks. One of those you highlight is Actavis (ACT). What’s the attraction there?
Peter Tuz: Actavis is a stock that we have owned for several years. It was formerly called Watson Pharmaceuticals and it was a mid-cap stock for us, but then they merged with Warner Chilcott, and now Forest Labs, and has created a company with a market cap of about $65 billion but with expected earnings growth over the next five years in the high teens range.
Generic medicines are one way that the world is looking to control rising healthcare costs and Actavis, through a series of smart acquisitions, has made itself one of the largest players in that sector.
Steven Halpern: Now, another pharmaceutical and healthcare stock that you highlight is McKesson Corp. (MCK). What’s the story behind that?
Peter Tuz: McKesson is one of the three leading distribution companies for pharmaceutical and other healthcare products.
With the advent of the Affordable Care Act a couple of years ago, it became pretty evident that more people were going to see more healthcare providers, and get more medicines, and all of those products have to go from the manufacturer to the hospital, or to the physician’s office, or to the clinic, and McKesson is right in the middle of that helping distribute the products and so again, will benefit from trying to control healthcare costs.
Now they also were fortunate enough to make an acquisition of a German company called Celesio with favorable tax terms—before the terms were changed recently—so that should give them a big foothold in doing the same thing in Europe.
Steven Halpern: Finally, a third idea in the healthcare sector is STERIS Corp. (STE), which focuses on infection prevention. Could you tell our listeners a little about this company and why you find it attractive?
Peter Tuz: Infection prevention, it kind of sounds mundane and obtuse, I guess, but in this day of Ebola—and the need to keep healthcare facilities as clean as possible—we were looking for companies that helped hospitals and other healthcare facilities do this.
I have known STERIS for a long time, having an exceptionally good year right now. Earnings in the 2014-2015 period ought to rise by the mid-teens, maybe 12% again next year.
A leader in its field and, kind of, as more people run through the healthcare system, the need for more infection prevention cleanliness products increases, and it kind of operates on a razorblade approach, so it has a fairly good recurring revenue base as well.
Steven Halpern: Again, our guest is Peter Tuz of Chase Growth Fund and the Chase Mid-Cap Growth Fund. Peter, thank you so much for taking the time, today.
Peter Tuz: You’re welcome.
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