Comebacks like the one Cindy Stark enjoyed in 2023 are extremely rare.
It's hard to imagine a year-over-year change of nearly 100 percent, but certainly Value Line's large company-focused fund (Valks) increased by 59.1% last year, following a 39% decrease in 2022. Its performance is Top 2% in that categoryThe Morning Star newspaper reported.
Perhaps even more incredible is that this turnaround was not accompanied by a major strategic shift. Stark has stuck to the same process for the large growth funds she has managed alone for the past decade. But the results couldn't be more different.
“The last thing you want to do after two bad years is really try to change what you're doing,” Starke told Business Insider. “I would never do it, you know what I'm saying? I believe in what I'm doing.”
Mr. Starke continued: “It's a long-term philosophy. It can be very painful when you feel like you can't do anything right, but the process itself is always just looking at the companies we own and just making sure. I think so.”: Will there be a rebound? ”
The question wasn't just rhetorical. It's hard not to lose faith after years of finishing in the bottom 10%, including the backdrop for growth stocks in 2021. Like Meta, Starke said he has reflected on a lot after a horrific 2022 that featured a collapse in top holdings.
“We were feeling a lot of pain heading into 2023,” Starke said. “No one likes to lose. I want to make money. We're here to make money for our investors. Underperformance is very painful, especially for growth stocks. Not to mention 2022, which was a really bad year.”
Making a comeback after a long hiatus, Starke said he aims to extend the mutual fund's winning streak into a second year by sticking to his investment philosophy, sticking to his process and betting on a small number of top growth stocks. .
Bigger is better, but smaller is better
Mr. Starke adheres to a simple investment philosophy that prioritizes company fundamentals. Her large-cap growth funds are built on blue-chip stocks with successful business models, durable competitive advantages and first-class management teams.
“Earnings and sales growth are thought to drive stock prices over the long term,” Starke said. “The best way to generate long-term capital growth and outperform investors is to own a concentrated portfolio of market-leading growth companies over the long term.”
Another characteristic Mr. Stark looks for in a company is long-term growth, he said. Fund managers prefer companies that can grow earnings in any environment, rather than cyclical companies that are subject to booms and busts.
Mr. Starke is selective about which companies to include in the fund, but he is not sentimental about them. If a company is failing to maintain its status quo, she has no problem selling it in exchange for a company that is. Starke said last year she pared her portfolio from 46 stocks to just 36 stocks.
“We take a very Darwinian approach as growth-oriented investors,” Mr. Starke said. “Do we add these names at this point? Do we just sell them and add them to other names that we feel more confident in? That's part of our philosophy.”
Mr. Stark isn't in the habit of praising underperforming companies, but he's willing to admit when he's made a mistake with a stock or when a company's original theory no longer holds true.
“If you're doing your job right, your turnover rate should be low or below average,” Starke said. “If I'm picking stocks, if these companies are true long-term winners, we can hold on to these businesses for a while.”
What does a successful growth stock look like?
Mr. Starke says the stocks he focuses on typically grow revenues by 10% or more and profits by 15%. That way, they can make money based on fundamentals, rather than factors like interest rates, which soared in 2022 and pushed down growth companies' price-to-earnings ratios.
“We own companies that are growing faster than the index, because, again, you can't have a lot of slow-growing companies if earnings growth is going to drive stock prices up,” Starke said. said. “Because then you would be relying on P/E expansion, and you don't want to depend on that.”
Investors typically use the P/E ratio to determine whether a company is fairly valued relative to its earnings, but Starke prefers the P/E ratio. peg, or the P/E ratio to growth. This metric takes into account a company's revenue velocity and can more fairly value fast-growing companies.
“I look at PEG a lot because it's the only way to go for fast-growing companies,” Starke said. “If you're using absolute multiples, you can't buy a lot of these companies.”
Many of the market's best-performing stocks look expensive on a P/E basis, and some have even grown PEG ratios, and many of these stocks have been that way for years. A prime example is Nvidia, which was the top stock on the S&P 500 in 2023. Investors who were picky about seemingly ambitious valuations missed out on a whopping 228% gain over the past 12 months.
9 top stocks to buy now
Stark's process helped her find Nvidia, her fund's second-largest holding as of Dec. 31. But this visionary appointment was not her only victory. She said her fund had 24 positions that increased by at least 50% in 2023, including nine that doubled.
Fund managers have revealed their nine favorite companies to own. The first six companies are among the top 10 stocks. Each stock and its ticker, market cap, and theory are listed below.
