In early August he purchased shares in another young company, Navteq, soon after its IPO. The company is the dominant supplier of the technology used in GPS systems for automobiles and hand-held devices. Eventually, says Segalas, the technology will migrate to cell phones as well. "The use of these systems is still in its infancy, and Navteq has 90% of the market," he notes.
Anchoring new names like Google and Navteq are more established growth stocks such as Microsoft. Segalas says this " maturing growth company" should see earnings growth of about 15% in 2005, while its stock has the potential for a 15% to 20% total return over the next year, including dividends. "This company has so much cash and is so profitable that dividends are appropriate," he says. Another cash rich technology holding, Intel, recently doubled its quarterly dividend for the second time in a year, bringing its dividend yield to around 1.4%, and beefed up its stock buyback program.
This veteran money manager is also finding growth in some unlikely
places. Dividends are no stranger at J.P. Morgan Chase & Co., a
portfolio stock that recently sported a dividend yield of 3.5%. Segalas
says the presence of the stock, which most would classify as a value
holding, helps keep the portfolio's price-earnings ratio within
shouting distance of the market average and offsets the risk of rapidly
growing companies with the stability of more mature names. In addition
to the stock's modest valuation, he also likes the company's
respectable 10% to 12% annual earnings growth and its new management
team. "This is not a go-go growth fund," he says. "We want above
average growth, but we are also reasonably sensitive to portfolio
valuation."
Oil exploration company Schlumberger also represents a departure from the fund's usual fare. Segalas calls it a "cyclical growth company," and says that while he usually prefers unit growth over price growth, he's made an exception with Schlumberger because it is "clearly one of the beneficiaries of higher oil prices."
Some of the best growth opportunities Segalas sees for 2005 come from the fund's retail sector holdings. Home goods store Bed Bath & Beyond sports a reasonable price-earnings ratio, has the potential for earnings growth in the 20% range over the next year and is an excellent candidate for a share buyback program. Electronic Arts, the dominant maker of software games, has a lot of cash, no debt and a reasonable stock valuation. The stock, says Segalas, "has the potential for a 50% total return over the next two years."
Marla Brill is a freelance writer and founder of brill.com, a leading independent Web site on mutual funds.