Mutual Funds & Personal Finance
 

Manager Plucks Energy, Tech For '06 BY MURRAY COLEMAN INVESTOR'S BUSINESS DAILY Posted 1/18/2006

Bill D'Alonzo still sees plenty of growth in energy stocks.

That's not saying the veteran manager at $1.4 billion Brandywine Blue Fund disagrees with those who think commodity prices will fall.

"Oil prices are always going to be volatile," said D'Alonzo. "But we prefer to invest in companies that provide services and develop new equipment for oil producers. They're more dependent on long-term capital investment patterns than rising or falling commodity prices."

By staying away from big integrated oil firms and sticking with leaders in specific specialties, he says, opportunities still abound.

And he doesn't dispute that tech has been a tough area the past few years. Again, he sees pockets of growth in the coming year in hardware and software.

Over time, D'Alonzo's picks tend to be more right than wrong. In the past five years, the fund's 4.41% average annual return put it into the top 4% of its large growth category tracked by Morningstar, beating the S&P 500's 0.96% gain. Looking back a decade, the fund outperformed 89% of its peers. Its average annual return of 10% outdistanced the broader market's 9.07%.

This year heading into Wednesday, Brandywine Blue was up 3.99% vs. its peers' 3.29% and the S&P 500's 2.78%.

What's behind D'Alonzo's hot hand? He says a big factor is his concentrated portfolio. Through September the fund held about 30 names. Focused funds can expose investors to big dips. But D'Alonzo argues that in the long run, limiting the portfolio's holdings to those in which he's most confident produces superior results.

The manager doesn't sit on his picks. The fund entering October had a turnover ratio of 181%. At that rate, he could remake his portfolio about every six months. "We're always keeping an eye out for better growth prospects," said D'Alonzo.

Hardware and software at a combined 26.37% of assets represented its largest sectors as of Sept. 30, also a big overweighting from the general market. Leading tech names included Motorola. (MOT)

Motorola is continuing its rollout of third-generation wireless gear.

"They currently have a very strong lineup of cell phone handsets," said D'Alonzo. "As a result, Motorola has been gaining market share both domestically and internationally."

The checks he and his analysts have done of phone carriers indicate Motorola has momentum in the market. D'Alonzo also likes the fact that Wall Street's views keep soaring on the stock. Six months ago, it was expected to earn $1.21 a share in 2006. That rose to $1.29 early into the new year.

"It's not a dramatic rise, but we're seeing views still positive," said D'Alonzo. "And we think there might be even more upside in this stock."

The fund had 17.89% of its assets in energy. That was its second biggest sector and nearly double the S&P 500's weighting.

Nabors Industries (NBR) was its top holding in that sector. D'Alonzo started adding shares in June 2004. The fund's average cost on the stock was 52.

"We think the earnings estimates on the Street are quite low," he said. "They've got some room to move up more in 2006."

Consensus earnings views for 2006 have gone up from $4.42 a share a few months ago to around $6 today. "They've got a leadership position with over 900 well-servicing rigs and more than 600 land-drilling rigs," he said. "They contract those out to the oil companies, which rent them to use. The day rates have been steadily going up over the past year."

In the past, oil companies purchased rigs in good times and avoided spending as much when demand slackened.

"In this cycle, the tendency has been to lease rather than buy," said D'Alonzo. "Companies don't seem too eager, even with strong demand this time to keep adding to their fixed costs."

He's also been putting money into select industrials. The fund's top name was material products leader Phelps Dodge. (PD)

D'Alonzo started adding shares in mid-November. Its average cost per share is about 138.