Richard Eisinger // Portfolio Manager // Madison Mosaic Mid-Cap (GTSGX)

Comments & Outlook

Due to continuing political and economic uncertainty, corporate management teams remain reluctant to invest in organic growth.

Instead, the market’s ascent has been fueled by acquisitions, margin expansion, share repurchases, and dividend payouts. The next catalyst that could take the market higher is top-line revenue growth, but that won’t happen until consumer demand returns.

Investment Strategy

We like to see management teams with significant skin in the game, so their interests are aligned with shareholders. Management is also best incentivized when their compensation is tied to key metrics that show the company is being run for the long term.

Another way of assessing management quality is whether a firm’s return on invested capital (ROIC) exceeds its cost of capital. If you find companies that can maintain that advantage, you’re going to have a winning portfolio.

Portfolio Picks

Expeditors International of Washington (NSDQ: EXPD) is a global logistics company, which is akin to a full-service travel agency for shippers. They rent space in aircrafts and ocean-going vessels and also handle tariffs, customs, distribution management and cargo insurance. The company’s asset-light business model means they don’t own the transportation assets they utilize. That minimizes capital expenditures, which enhances ROIC.

Weakening global growth has dampened air and ocean volumes, and the stock has been beaten down. But the company is well managed, with substantial cash and no long-term debt. Although they won’t achieve the 20 percent-plus growth they enjoyed in the past, their earnings will still grow in the low-to-mid teens once the global economy improves.

Copart (NSDQ: CPRT) is enlisted by insurers to auction totaled vehicles to used car dealers and salvage yards. The company has started to expand overseas, and that growth has been facilitated by their online auction system.

Copart operates in a duopoly with KAR Auction Services (NYSE: KAR). But Copart is the superior firm. The company has high inside ownership, and its patient management team invests for the long term. Copart generates strong cash flows, and earnings should grow 10 percent to 15 percent annually for the foreseeable future.

Brian Lazorishak // Portfolio Manager // Chase Mid-Cap Growth (CHAMX)

Comments & Outlook

We expect the US economy to grow between 1.5 percent and 2 percent in 2013. For the stock market, this probably means muted returns at best, as well as volatility along the way, as we get past some political and economic uncertainties, such as the fiscal cliff, only to face new worries.

As bottom-up stock pickers, however, we’re less concerned about divining the overall direction of the market than we are about identifying the most promising stocks.

Investment Strategy

Our investment philosophy is growth-at-a-reasonable price. We focus on consistently growing companies that have increased earnings 10 percent annually, in at least seven of the last 10 years.

On a shorter-term basis, we’re looking for earnings momentum, stocks whose earnings estimates are moving higher following positive revisions and surprises. On top of that, we apply a technical framework through which we look for stocks with positive relative price performance, so they’re outperforming the market as a whole as well as other stocks in their sector and industry.

Portfolio Picks

Quanta Services (NYSE: PWR) is the leading company in repairing, upgrading or replacing electric transmission lines. People have been lamenting the condition of the aging electrical grid in the US and Canada for years. By some estimates, most of the grid is at the limits of—or already beyond—its useful life. But progress toward improvements has been halting at best. Electric utilities are only just now investing in upgrades to the grid, so we’re still very early in the process. As a result, Quanta is beginning to see rising earnings as well as a growing backlog.

Polaris Industries (NYSE: PII) is the leading company in what is known as the power sports market. About 65 percent of their business is off-road vehicles, side-by-sides, snowmobiles, motorcycles and electric vehicles. The company has been a model of growth consistency: Earnings per share have grown 20 percent annually over the past five years. And Polaris is on track to produce 30 percent growth in 2012, with another 20 percent expected in 2013.