Brian Peery Co-Manager, Hennessy Focus 30 Fund (HFTFX)

Comments & Outlook

We are very optimistic about the overall market. US corporations are lean and productive, consumer spending and employment is improving, and the interest rate environment remains favorable. The current bull market is sustainable. Rising oil prices may test the economic recovery, but today’s consumer has been resilient in the face of higher oil prices.

Recommended Strategies

Our fund focuses on long-term growth of capital and holds 30 domestic growth-oriented mid-cap companies. Mid-cap stocks are in the sweet spot for investors. These companies are large enough to have defensible market positions and nimble enough to capitalize on incremental opportunities to grow their businesses. Investors should seek companies that have grown their market capitalization, earnings, and stock price over a three-, six- and 12-month period. A price-to-sales ratio below 1.5 suggests a relative bargain.

What to Buy Now

Dollar Tree (NSDQ: DLTR) operates discount variety stores that sell merchandise for $1. In this economy, US consumers need to stretch their discretionary income as far as possible, an environment that will benefit Dollar Tree. The company’s gross margins and operating margins are expanding and the Dollar Tree’s stock recently hit a new 52-week high. Nevertheless, Dollar Tree is still a bargain with a price-to-sales ratio of less than 1.5.

Williams-Sonoma (NYSE: WSM), which maintains the Pottery Barn and West Elm brands, is a specialty retailer of higher-end cookware and home furnishings. The company has actively cut costs and grown its business amid industry consolidation. Williams Sonoma should benefit from any incremental increases in consumer spending, as the US consumer focuses on value and quality.

Complete Production Services (NYSE: CPX) provides specialized services and products that help oil and gas companies develop their reserves in North America and Southeast Asia. The company, formerly known as Integrated Production Services, has a revenue steam that’s very sensitive to oil and natural gas prices. When oil prices are high, Complete Production Services’ clients spend more to develop their reserves. This uptick in spending drives revenue for Complete Production Services.

Eric Schoenstein, Co-Portfolio Manager, Jensen Portfolio (JENSX)

Comments & Outlook

US corporations are running lean and consumer confidence is growing. Increased borrowing and lower loan delinquencies will continue to benefit the economy. But rising prices for oil and other commodities could test the economy. Thus far, the market has performed well and investors have unemotionally evaluated risks in the market and around the globe.

Recommended Strategies

We invest in high-quality, all-weather businesses that can perform well in any economic environment.  The goal is to find these companies when their stocks aren’t overpriced.  Focus on quality companies that are growing their business.  The most important characteristic is the durability of the company’s competitive advantage.  Look to the companies with strong financials, access to the debt markets, pricing power, strong management teams, and a minimum of 15 percent return on equity.

What to Buy Now

Praxair (NYSE: PX) produces, distributes and sells industrial gases such as nitrogen and oxygen in the Americas, Europe and Asia.  It also builds equipment for companies in various industries.  At least 50 percent of the company’s sales are derived overseas, and Praxair is building new projects in South America.  The company has high operating margins, impressive organic sales growth and continues to reinvest in its business.

3M Company (NYSE: MMM) sells more than 55,000 products in 200 countries; overseas sales account for 65 percent of 3M’s $26 billion in revenue.  This company may be best known for the Post-it Note, but it innovates in every market.  3M’s impressive cash flow is used to fund internal growth projects, buy back stock, pursue mergers and acquisitions and pay dividends.  Only a rock-solid company can do all of these things at the same time.

Enterprise software provider Oracle (NASDAQ: ORCL) garners 57 percent of its $34 billion in revenue from foreign markets. The company employs a two-pronged strategy: acquire new customers and then cross-sell new licenses from the product suite. A decade of acquisitions has made Oracle a one-stop shop for its customers. Once a company has purchased an Oracle system, switching costs are incredibly high, so customers tend to stick with the product. Oracle recently initiated a dividend and consistently commits 12 percent of sales to product development and ongoing innovation.