Edward Painvin // Co-Manager // Chase Growth Fund (CHASX)

Comments & Outlook

In the near term, we’re quite conservative, although our 12 to 18-month outlook is more upbeat.

The US stock market historically has not performed well in September and October. Also, there are likely to be some downward earnings revisions, given that S&P 500 earnings are forecast to rise 6 percent in the third quarter and about 10 percent in the fourth, a big leap from the 2 percent growth of the second quarter. There’s also Syria-related uncertainty, and the US debt-ceiling issue will soon resurface.

Investment Strategy

Our strategy relies on both fundamental and technical disciplines. We look at the direction and magnitude of earnings revisions. We look at earnings surprises and make sure that the companies we own are classic “beat and raise” kinds of stories. Our work on the fundamentals side is predicated on determining earnings momentum, while the technical side is driven by relative strength, price momentum and specific patterns that we spend a lot of time analyzing.

Portfolio Picks

One of our top 10 holdings is Actavis (NYSE: ACT), the generic drug manufacturer. This company is expected to increase earnings in excess of 20 percent during the next two to three years, and its price-to-earnings- growth (PEG) ratio is significantly below 1. In fact, we make sure that all our companies have PEG ratios below 1, indicating that the multiple we’re paying for the stock is less than the growth rate of the company.

Actavis recently announced its acquisition of Warner Chilcott (NSDQ: WCRX), based in Ireland. This is going to lower the company’s overall tax rate and bring along with it an enormous level of synergies and earnings accretion.

On the consumer side, CBS Corp (NYSE: CBS) is a favorite. It’s a company that’s sitting pretty in terms of viewership by the most coveted demographic—the 18-to-41 age group.

CBS has 20 returning shows this fall, and only four or five new ones. So CBS is very sticky in terms of content. Its ad rates are still very robust, and a key catalyst is that it’s going to be spinning off its outdoor billboard business.

We could see an IPO as early as spring 2014, and the company has said it will use the proceeds to buy back stock. So CBS could end up retiring 30 percent of its shares outstanding in the near future.

Kevin O’Brien // Portfolio Manager // Prospector Opportunity Fund (POPFX)

Comments & Outlook

Currently, there are just as many negatives as positives affecting the stock market. But over the long term, we expect the market to produce its historical total return of 7 to 9 percent annualized. True, stocks have had a big run – and certain sectors are bound to experience a downturn. However, although it has been a bit more challenging to find good ideas, we’re still seeing a lot of good values, and this is driving our forecast.

Investment Strategy

We’re bottom-up stock pickers, and everything we do is value-oriented. We focus mainly on free cash flow and relative enterprise value. When we analyze large financial companies, we zoom in on the balance sheet and our assessment of adjusted book value. These two measures ultimately drive our investment decisions.

Portfolio Picks

OceanFirst Financial Corp (NSDQ: OCFC) is a conservatively run savings institution with a strong market position in Ocean County, NJ. We look for earnings growth to accelerate as this region rebuilds in the wake of Hurricane Sandy, and as OceanFirst reduces its capital-to-equity ratio from the current 9 percent (which is high) down to 8 percent. If this excess capital is used to repurchase shares, this would add about 12 percent to the earnings base.

Another catalyst is that Ocean- First’s longtime CEO is expected to retire in 2014. This could lead to OceanFirst being acquired, most likely at a higher valuation.

We like that OceanFirst stock yields 3 percent and is priced at 14 times this year’s earnings estimates. Another plus is that OceanFirst has repurchased more than half of its shares since going public in 1996.

We also like Symantec (NSDQ: SYMC), a global management-systems provider. It has leading market share in its major products, generates high cash flow consistently, and management is now dedicated to increasing shareholder value.

Our interest was piqued when Symantec’s CEO, who had made a series of ill-advised acquisitions, was replaced by Steve Bennett in July 2012. Bennett’s goal is to improve profit margins by 2 to 5 percentage points in the next several years, and to return to shareholders more than half of the free cash flow. Bennett was previously at Intuit (NSDQ: INTU), where he helped orchestrate a major turnaround.

Symantec has about $2 billion in cash on its balance sheet. And the stock is priced at a very reasonable 14 times 2013 earnings estimates.