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September 03, 2002 at 08:00 PM
Quick Take: Louis Navellier and his fellow money managers at Navellier Funds primarily use computer programs to determine which stocks to buy and sell.
This quantitative method of investing led the Navellier Performance Aggressive Micro Cap Fund (NPMCX) to lose 12.3% this year through July, but that still put it ahead of the Russell 2000 growth index, which was off 30.1%, and its small-cap growth fund peers, which slid 27.2%. The fund returned 2.6% on average for the five years ended last month, compared with a loss of 1.4% by its peers.
Navellier and Michael Borgen, a former analyst on the fund who became lead manager in March, said consumer stocks have helped in recent months. They currently make up about a third of the portfolio.
The Full Interview:
Even market sectors that look bad can have stocks that look good.
For instance, three of the latest additions to the Navellier Performance Aggressive Micro Cap fund are technology companies. Portfolio managers Louis Navellier and Michael Borgen bought shares this week of software makers DocuCorp Intl (DOCC), Neoware Systems (NWRE), and Fidelity Natl Information (FNIS), which provides databases to real estate professionals and lenders.
Despite the battering tech businesses have taken over the last two years, all three have attractive and improving financial underpinnings, including increasing earnings. In addition, their stock prices don’t move up and down dramatically, says Navellier. He looks for these qualities in picking stocks, or rather lets his PC look for them.
Navellier and Borgen are quantitative money managers who rely on a computer model to identify potential investments. The program scans for companies whose profits are rising robustly and that are expected to continue moving up. It also hunts for stocks that analysts have upgraded estimates for within a one-month period and that beat expectations.
The companies in the portfolio are growing earnings by about 35%-40% annually on average, primarily because their operating margins are expanding, according to Borgen. He says their revenue growth has been about 12%-14%.
In addition, the program focuses on stocks that are widely held by institutions, which can reduce price volatility, Navellier notes. The overall goal is to generate “good, risk-adjusted returns,” he says.
Borgen cites Panera Bread`A` (PNRA) as an example of the kind of stock the fund invests in. The company operates and franchises combination bakery-cafes.
The stores, which attract upscale customers, utilize space and equipment very efficiently and “keep inventories real tight,” he says. Navellier adds that the chain is an “institutional darling.”
