There are a handful of small, actively managed mutual funds holding little more than a dozen or so stocks boasting returns above 22 precent this year, or more than double the return of the benchmark Standard & Poor's 500 index.
Their secret? Old-fashioned stock picking of lesser-known or undervalued companies.
Take, for example, the $20 million Biondo Focus Investor Fund .
It’s up 37 percent this year, with a portfolio made up of 13 stocks.
Biondo Focus has a couple of well-known large-caps carrying the load, including everybody’s favorite pick, iPhone and iPad maker Apple, and the turnaround stock of the year, Bank of America.
It also has some under-the-radar stocks. Its latest addition is Nuance Communications, a maker of speech-recognition software.
Then there’s the $36 million Berkshire Focus Fund , up 25 percent this year. It, too, has big gains on large-cap stocks such as Apple and Internet travel site Priceline.com.
The fund initiated new positions in CommVault Systems, Rackspace Hosting, and Zynga in the past quarter or so. Those stocks posted double-digit returns this year.
Once-revered fund manager Bill Miller’s $1 billion Legg Mason Capital Management Opportunity Fund , up 25 percent this year after losing 35 percent in 2011, started stakes in NXP Semiconductor and E*Trade Financial, which have performed strongly this year.
But small-cap stocks aren’t the only focus of smaller funds. With a tilt toward large-caps, the $130 million SunAmerica Focused Growth Fund , up 21 percent this year, made a big bet on the biopharmaceutical drug firm Celgene late last year. It also initiated a stake in online brokerCharles Schwab.
I screened the Morningstar database for small, actively managed equity funds with returns of at least 20 percent this year to find some of their newest, top-performing stocks. (Note that the average domestic stock fund is up 12.1 percent, on average, in 2012.)
Here are summaries of 10 stocks that those funds are buying in inverse order of returns this year:
10. Nuance Communications
Company profile: Nuance , with a market value of $8 billion, makes speech-recognition software for use in automated call centers, mobile phones, global positioning systems, and personal computers. Early this month, it announced the planned purchase of the medical transcription company Transcend Services, which will boost its presence in the health-care business.
Investor takeaway: Its shares are up 3.7 percent this year and have a three-year, average annual return of 41 percent.
Analysts give its shares 13 “buy” ratings, two “buy/holds,” three “holds,” and one “sell,” according to a survey of analysts by S&P. It’s expected to earn $1.56 per share this year and earnings will grow 13 percent next year.
9. Celgene
Company profile: Celgene , with a market value of $33 billion, is a biopharmaceutical firm that develops therapeutics for the treatment of cancer and immunological diseases.
Investor takeaway: Its shares are up 12.5 percent this year and have a three-year, average annual return of 16.4 percent.
Analysts give the company 15 “buy” ratings, eight “buy/holds,” and seven “holds,” per S&P. S&P has it rated “strong buy” with a $93 price target, a 24 percent premium to the current price. The company is expected to earn $4.83 per share this year and $5.66 next year, a 17 percent increase.
8. CommVault SystemsCompany profile: CommVault , with a market value of $23 billion, is the developer of the Simpana software package, which helps companies manage their storage resources, independent of platform or location.
Investor takeaway: Its shares are up 14 percent this year and have a three-year, average annual return of 45 percent.
Analysts give its shares three “buy” ratings, three “buy/holds,” 10 “holds,” and one “sell,” a survey of analysts by S&P shows. S&P has the shares rated “hold” on valuation concerns, but said the company will gain market share and its growth will outpace that of the rest of its industry.
7. First BanCorp
Company profile: First BanCorp, with a market value of $806 million, is the holding company for FirstBank Puerto Rico, which operates more than 50 banking offices and supermarket branches in Puerto Rico and the U.S. Virgin Islands.
Investor takeaway: Its shares are up 15 percent this year and have a three-year, average annual loss of 57 percent.
Analysts give its shares one “buy” rating and one “hold,” according to a survey of analysts by S&P. It earned $2.18 per share in 2011, a big turnaround from the losses of the prior two years.
The $74 million Schneider Small Cap Value Fund, up 20.7 percent this year, has been buying regional bank stocks and late last year initiated a 2.4 percent portfolio stake in this company.
6.Rackspace Hosting
Company profile: Rackspace , with a market value of $7 billion, is a managed hosting and cloud computing provider. Cloud computing is the faster-growing market segment and recently reached more than 20 percent of overall revenue.
Investor takeaway: Its shares are up 29 percent this year and have a three-year, average annual return of 110 percent.
Analysts give them five “buy” ratings, four “buy/holds,” 10 “holds,” and one “weak hold,” according to a survey of analysts by S&P. It has 73 percent institutional investor ownership.
5.Dynavax Technologies
Company profile: Dynavax Technologies, with a market value of $672 million, is a clinical-stage biopharmaceuticals company, that develops novel products to prevent and treat infectious diseases.
Investor takeaway: Its shares are up 29 percent this year to $4.29, and have a three-year, average annual return of 79 percent.
Analysts give Dynavax five “buy” ratings," per S&P. It’s expected to lose 41 cents per share this year.
The $1 billion Federated Kaufmann Small Cap Fund , up 22 percent this year, made it its largest stake at just over 6 percent of its portfolio, or more than double that of the next largest holding.
4. Charles Schwab
Company profile: Charles Schwab , with a market value of $19 billion, is in the brokerage, banking, and asset-management businesses.
Investor takeaway: Its shares are up 31 percent this year and have a three-year, average annual return of 3 percent.
Analysts give its shares five “buy” ratings, two “buy/holds,” and 12 “holds,” according to a survey of analysts by S&P. S&P says the firm’s results are “heavily geared toward short-term interest rates, given that 37 percent of its top line came from net interest income in 2011,” so results aren’t likely to improve substantially until the Federal Reserve raises rates.
3. E*Trade Financial
Company profile: E*Trade Financial , with a market value of $3 billion, is an online discount brokerage and bank.
Investor takeaway: Its shares are up 31 percent this year and have a three-year, average annual return of 11.5 percent.
Analysts give them one “buy/hold,” 13 “holds,” and one “weak hold,” according to a survey of analysts by S&P. It’s expected to earn 49 cents per share this year and that that will grow by 39 percent next year to 68 cents.
2. Zynga
Company profile: Zynga , with a market value of $10 billion, is a leader in the growing market for free online social games, with Facebook as a key partner. More than 90 percent of its revenue and bookings result from users playing games on Facebook. It’s also mulling developing online gambling services beginning with poker.
Investor takeaway: Its shares are up 42 percent this year. The company went public on Dec. 16.
Analysts give its shares four “strong buy” ratings, eight “holds,” and two “strong sells,” per TheStreet Ratings. JPMorgan Chase recently downgraded the shares to “neutral” from “outperform” on valuation concerns.
1. NXP Semiconductors
Company profile: NXP Semiconductors , with a market value of $6.5 billion, is a Netherlands-based chip company. NXP posted revenue of $4.2 billion in 2011 and earnings of $1.71 per share.
Investor takeaway: Its shares are up 62 percent this year.
Analysts give NXP four “strong buy” ratings and two “holds,” according to a survey of analysts by TheStreet Ratings. It gets a “buy” rating from Goldman Sachs Group.
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