A fund manager who's crushed most of his peers by buying the market's biggest cash cows breaks down 5 non-tech stocks driving his performance
- The T. Rowe Price Blue Chip Growth Fund has outperformed the broader stock market on average since 1993, and its returns sit in the 92nd percentile on a five-year basis.
- Like many other funds that invest in strong earnings growers, its top holdings include Amazon and other tech giants.
- In a recent interview with Business Insider, fund manager Larry Puglia discussed his bull case for five non-tech stocks that have boosted the fund's performance.
- Click here for more BI Prime stories.
Investing in technology giants has been a slam dunk for growth-fund managers during this bull market.
Larry Puglia, the sole manager of the T. Rowe Price Blue Chip Growth Fund, has earned his share of the returns that these companies have given investors. Amazon is his biggest holding, and he remains bullish on the company for its ability to disrupt just about any industry.
He likes Facebook for its user growth and the windfall it stands to earn by fully monetizing WhatsApp and Messenger. You'll also find Alphabet in his $65.1 billion portfolio.
But Puglia has not outperformed the market for 26 years, on average, by entering only the most popular bets. In a recent interview with Business Insider, he explained his investment theses for some of the non-technology stocks that have driven his fund's returns, which are in the 92nd percentile on a five-year basis.
Since the fund's inception in 1993, Puglia has viewed a company's free cash flow as a strong predictor of its returns. This means that regardless of sector, he's drawn to companies with the resources to invest in and grow their future earnings.
He also hunts for firms that have leading market positions in their industries and strong management teams that allocate capital responsibly.
These guidelines led him to the following companies, which he says are off the beaten technology path. All the quotes below are attributed to him.
Yum Brands
"From a broad portfolio-construction view, the quick-service restaurant industry is very appealing.
"The restaurant industry would be a great example of an industry that has durable sustainable growth, in our view, and the business models tend to generate a lot of free cash.
"Yum Brands owns Kentucky Fried Chicken, Taco Bell and Pizza Hut. Their comps on those businesses for the quarter: Taco Bell was up 7%, Pizza Hut was up 2%, and KFC was up 6%. Comping at those kinds of levels on top of really good comps in the prior year is very impressive.
"This company has a great track record of innovating - introducing new products - particularly at KFC and Taco Bell.
"I think Pizza Hut has been more of a turnaround for them. They've struggled to try to keep pace with Domino's and others that have been more successful, frankly, in the pizza area. I think they're slowly but surely gaining traction in the pizza area, too.
"We also own McDonald's. We own Restaurant Brands International, which owns Burger King."
Dollar General
"Dollar General is a very well-managed company. And thematically, the dollar stores, I think, will be pretty durable in most economic environments."
Intercontinental Exchange
"The exchanges can be very good investments and ICE has been a good stock for us over time."