Fund manager Cindy Starke ensured a massive upswing last year. Getty Images/Yuichiro Chino
Cindy Starke’s mutual fund rose 59 percent as she stuck to her method of picking large growth stocks.
The portfolio manager explained her investment philosophy and strategy that led to her success.
Here are nine companies Starke is bullish on right now.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by an editor.
Comebacks like Cindy Starke’s in 2023 are extremely rare. Because a year-on-year fluctuation of almost 100 percentage points is difficult to imagine – but the Value Line Larger Companies Focused Fund recorded a gain of 59.1 percent last year after a loss of 39 percent in 2022. With this achievement, according to “Morningstar“ in the top two percent of its category.
Sometimes it’s worth pursuing a strategy consistently
What’s perhaps even harder to believe is that this reversal didn’t involve a major shift in strategy. Starke stuck to the same process for the large growth fund that she has single-handedly managed for the past decade. However, the results couldn’t be more different.
“The worst thing you can do after two bad years is to try to really change what you’re doing,” Starke told Business Insider. “I said to myself, ‘I would never do that’ – you know what I mean? I believe in what I do.” Starke continued: “This is a longer-term philosophy. And even if you feel like you can’t do anything right – which can be very painful – I think the process itself is to constantly check the company stocks we own and make sure: Will it happen again? go up?”
And this question wasn’t just meant to be rhetorical. It would be hard not to lose faith after finishing in the bottom 10 percent in two consecutive years, and that too in the growth-friendly 2021. Starke said that after her terrible 2022, which saw collapses I thought a lot about top values like Meta.
“I felt the pain very strongly at the beginning of 2023,” Starke said. “Nobody likes to lose. I want to earn money. We’re here to make money for our investors, and it’s so painful to have poor performance – let alone 2022, when it was just a really bad year for growth stocks.”
After a comeback like no other, Starke shared how she plans to extend her mutual fund’s winning streak into a second year by sticking to her investment philosophy, sticking to her process and betting on a handful of top growth stocks.
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Bigger is better, but less is more
Starke adheres to a simple investment philosophy that focuses on a company’s fundamentals. Your large-cap growth fund is built on quality stocks with successful business models, enduring competitive advantages, and world-class management teams.
“The belief is that earnings and sales growth determine share prices in the long term,” says Starke. “The best way to achieve long-term capital growth and outperformance for investors is through longer-term ownership in a focused portfolio of market-leading growth companies.”
Another characteristic Starke looks for in companies is long-term growth, she said. The fund manager prefers companies that can increase their sales and earnings in any environment, rather than cyclical companies that are subject to the ups and downs of the economic cycle.
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Admit mistakes – and move on
Starke carefully selects which companies to include in the fund, but she doesn’t do it emotionally. If a company doesn’t perform well, she has no problem selling it and replacing it with another that does. Last year, Starke reduced her portfolio from 46 stocks to just 36 names.
“As a growth-oriented investor, we take a very Darwinian approach,” says Starke. “Are we adding anything to these titles at this point? Do we sell them and invest in other stocks that we have more conviction in? That’s part of our philosophy.”
While Starke doesn’t make a habit of divesting from underperformers, she is willing to admit when she’s wrong about a stock or when a company’s original thesis no longer holds true.
“If I do my job right, turnover should be lower or below average,” Starke said. “When I pick stocks, we can hold these companies for a while if they are real long-term winners.”
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What successful growth stocks look like
The stocks that Starke focuses on typically have sales growth of over 10 percent and earnings growth of 15 percent, Starke said. That way, profits are based on fundamentals rather than factors like interest rates, which soared in 2022 and pushed down the price-to-earnings (P/E) ratios of growth companies.
“We own companies that are growing faster than the index because if earnings growth drives stock prices, we can’t have slow-growing companies,” Starke said. “Because then we are dependent on P/E expansion, and I don’t want to rely on that.”
Investors typically use P/E ratios to see whether a company is fairly valued relative to its earnings. Starke prefers that PEG or the P/E growth ratio. This key figure indicates whether a stock is overvalued, undervalued or fairly valued. This metric takes into account a company’s earnings velocity, which puts fast-growing companies in a better light.
“I often look at PEGs because they are the only option for fast-growing companies,” says Starke. “If you use an absolute multiple, you simply won’t buy many of these companies.”
Many of the market’s best-performing stocks look expensive on a P/E basis, and some even have stretched PEG ratios – but that’s been the case for many of these stocks for years. A prime example of this is Nvidia, which was the best performing stock in the US S&P 500 in 2023. Investors who insisted on the seemingly ambitious valuation missed out on an absurd gain of 228 percent over the past twelve months.
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Nine top stocks to buy nowt
Strong practice helped her discover Nvidia, which was her fund’s second-largest holding as of Dec. 31. But that prescient choice was far from her only success — she said her fund had 24 holdings that were up at least 50 percent, including nine that doubled.
The fund manager presented nine of her favorite companies, the first six of which are in the top 10. Each stock is listed below, along with its ticker, market cap, and thesis.
1. Uber
Ticker: UBER
Market capitalization: 142 billion US dollars (around 132 billion euros)