Alger's Dan Chung: 2015 stock picks
DAN CHUNG
CEO, CHIEF INVESTMENT OFFICER, ALGER FUNDS
2015 STOCK MARKET OUTLOOK:
Investors will probably see more record highs in the U.S. stock market next year, but they should brace themselves for more downdrafts similar to the swoon in mid-October that knocked the broad market down nearly 10% and put a scare into investors, says Dan Chung, CEO and chief investment officer at Alger.
The Nasdaq composite, Chung predicts, will finally notch a new all-time high next year, 15 years after the dot-com bubble burst in March 2000. The Nasdaq entered today's trading session just 6.7% below its record close of 5048.62 on March 10, 2000.
If the Nasdaq, which has much healthier companies with real earnings this time around, busts out to a record and erases all of its losses from past plunges, it will send a "very positive, powerful" message to Wall Street," he says.
Be prepared for more volatility in 2015. Chung expects selloffs similar to this spring's rout, when momentum stocks and high-flying social media, computer cloud stocks and biotech names suffered a meaningful correction. More downdrafts like the Standard & Poor 500 index's 9.9% dip in October are also a threat.
"I think we will see more of that," says Chung, adding that any dips of that magnitude will create opportunities for stock pickers. He wouldn't rule out an "official" 10% market correction in the S&P 500. A downturn of that size hasn't occurred since late 2011.
BIGGEST RISK:
Anti-globalization. What really worries Chung is what he calls "rising global nationalism," or a "rejection of globalization." He cites political tensions in China, South Asia, Eastern Europe, Russia, Ukraine and the Middle East as "hot spots to be watched."
TOP STOCK PICKS
GrubHub (symbol: GRUB, Thursday's close: $31.90). The leading online/mobile platform for restaurant pickup and food-delivery orders is likely to grow earnings at a 30% to 50% clip for the next few years. It's well-positioned to capitalize on consumers' growing use of the Internet for retail transactions.
Tenent Healthcare (THC, $51.90). The hospital operator, residing in the favored health care sector, is an inexpensive stock benefiting from a drop in unpaid hospital bills and a rise in profits, thanks to fewer uninsured U.S. patients under the Affordable Care Act.
Blackstone (BX, $33.85). The private-equity firm plays a bigger role in debt financing and other forms of lending once dominated by banks. The asset manager, active in the real estate market, is "mispriced" by Wall Street as it trades at a lower P-E multiple than its peers, such as mutual fund companies.
Micron Technology (MU, $35.19). The computer memory player is a top growth name in tech, Alger's No. 1 sector pick for 2015. The combination of double-digit revenue, 20%-plus profit growth, below-market single-digit P-E and strong market position (MU is one of the top 5 players in space that control 90% of the global market) provides good upside potential.
SunEdison (SUNE, $19.02). Operator of commercial and utility-scale solar projects is a bet on growth in solar power generation and the ongoing transformation of energy sector. It's well-positioned for growth in the USA and globally.
Disclosures: Chung owns GRUB, THC, BX, MU, and SUNE via ownership of shares of funds he manages.
FAVORITE SECTOR:
Technology. The Nasdaq in 2015 is a very different animal than the Internet-crazed index in 2000, he says. Though virtually every stock in the Nasdaq's heyday was wildly overvalued, that's not the case today. Today's Nasdaq companies — including a "new generation" of leaders, such as Google and Facebook and biotech firms with "real products that are curing people" — grow their businesses and earnings at a much faster clip and are much better managed. "There are many parts of the Nasdaq, including Apple, its biggest component, which I think are undervalued," Chung says.
INVESTMENT THEMES WORTH BETTING ON:
• Don't bet against the "hated" bull. Chung dubs the bull market that began in March 2009 "one of the most hated bull markets of all time." He says investors' "aversion" to stocks, which shows up in tepid cash inflows into stock mutual funds, is "one of the formulas for why stocks can continue to outperform."
• Bet on progress. Solar power generation, for example, is gaining clout in the utility space. There's growth potential. "It is an example of a transformation in the energy industry and forward-looking technology," Chung says.
