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The 10 Best Growth Stocks to Buy From an Investor Who Caught the NVIDIA and Microsoft Rallies

March 20, 2024
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Upon glancing at the primary holdings within the Harbor Capital Appreciation fund, one might be inclined to assume that its managers are avid pursuers of momentum stocks, with prominent names such as Microsoft and Nvidia ranking high on the list.

However, historical data reveals that these investments were initiated long ago — Microsoft in 2015 and Nvidia in 2016, as indicated by Morningstar. Notably, the fund's stake in Apple dates back to 2004.

Established in 1987, the Harbor fund has been under the sub-advisory of Jennison Associates since 1990. Blair Boyer, a managing director and co-head of large-cap growth equity at Jennison, emphasized that to support long-term success, his investment team seeks out companies capable of consistently identifying and financing new avenues for growth.

In identifying these companies, Boyer's team concentrates on secular growth narratives and above-average growth rates in revenue, operating margins, and net income.

Boyer explained, "The self-reinforcing nature of these characteristics is such that it tends to mean that companies have the ability to use the free cash flow that they generate to reinvest in their business."

Performance Metrics:The institutional share class of the Harbor fund (HACAX) holds a three-star rating from Morningstar, having outperformed both its category and index over the past decade.

In 2023, the fund yielded a return of 53.7%, surpassing both the Nasdaq Composite and the S&P 500, marking the fourth instance in the last ten years that HACAX has ranked in the top 10% of large growth funds, as per Morningstar's data.

While Boyer, who has spent thirty years at Jennison, only officially assumed the role of manager for the fund in 2019, he emphasized the consistency of the fund's strategy over the years. However, the fund experienced a transition when long-time manager Sig Segalas, Jennison's co-founder, passed away in January 2023 at the age of 89.

Boyer remarked, "We have a very strong belief that there's a repeatability in the process."

As of 2024, the fund has commenced on a positive note, yielding a return of nearly 12% through March 15. Its assets now amount to approximately $28.5 billion, with an expense ratio of 0.68%.

Portfolio Composition:The Harbor fund demonstrates a considerable degree of concentration, with the top 10 holdings representing nearly half of the portfolio's value. Predominantly, these holdings are tech stocks, with some exceptions such as Eli Lilly.

Boyer noted, "If you looked over the very long history of the fund, I'd describe consumer, technology, broadly defined, and healthcare as kind of the areas where we've had the most exposure."

The list of holdings also highlights companies exhibiting "self-reinforcing" growth, including tech giants like Amazon, which have evolved significantly as the internet landscape matured. Additionally, Boyer pointed out Visa and Mastercard as holdings that have successfully adapted to the digitalization of payments, showcasing enduring growth prospects.

Portfolio Strategy:In addition to Boyer and the fund managers, Jennison boasts a team of analysts, each responsible for covering 30-40 stocks to identify potential investments. Boyer credited the addition of Advanced Micro Devices in the previous year to one analyst's insights into semiconductor market opportunities during Nvidia's surge.

Regarding portfolio management, Boyer's team strives to maintain full investment, requiring adjustments when adding new stocks by trimming or liquidating existing positions. They initiate new holdings with small allocations, typically starting at 30 or 40 basis points and adjusting over time based on business performance.

Furthermore, the Jennison team implements a diversified growth strategy within the portfolio to mitigate risk, categorizing stocks into three growth buckets based on their growth rates. This approach ensures a balanced exposure to different types of growth opportunities, including high-growth names and those with recurring revenue characteristics like credit card companies.

"The structure of the portfolio is not just around trying to own high-growth names," Boyer concluded.

Valentyna Semerenko
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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