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Over the last three months, the best mutual funds took a particularly healthy interest in medical, transportation and retail stocks. The beneficiaries include CVS Health (CVS), Union Pacific (UNP), Biogen (BIIB) and Ross Stores (ROST).

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Eleven stocks from the medical sector made this month's list. Thirty-seven funds invested just under an estimated $160 million in biotech industry leader Biogen. Abbott Laboratories (ABT) (35 funds, $258 million), HCA Healthcare (HCA) (43 funds, $247 million) and Abiomed (ABMD) (29 funds, $59 million) also received significant investments.

CVS, Lowe's (LOW) and Ross Stores join seven other retail stocks on the list. Best Buy (BBY), AutoZone (AZO), Kohl's (KSS) and Macy's (M) also made the cut.

Railroad giants CSX (CSX) and Union Pacific (UNP), along with United Airlines (UAL), led seven transportation sector names on the latest list. Union Pacific received the largest investment among its transportation peers, with 49 funds investing an estimated $249 million.

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Big Bets By The Best Mutual Funds

Lowe's led the list, in terms of amount invested, with 35 funds picking up approximately $299 million of shares. In addition to Lowe's, Union Pacific, Abbott Laboratories and HCA Healthcare, Boeing (BA), Thermo Fisher Scientific (TMO) and Boston Scientific (BSX) also joined the $200 million-plus club.

In last month's list of new buys by the best mutual funds, Union Pacific ($1.1 billion), Thermo Fisher Scientific ($849 million), Lowe's ($330 million) and United Airlines ($280 million) also picked up large investments in their most recent reporting periods.

Apple (AAPL), which saw 94 top funds invest an estimated $2.1 billion from June to August, failed to make the cut this month.

IBD 50 Stocks

You'll find two IBD 50 stocks on the list below: Abiomed and Old Dominion Freight Line (ODFL).

Along with CSX and Boston Scientific, Abiomed also earned a spot on the IBD Big Cap 20.

Both the IBD 50 and the IBD Big Cap 20 have a proven track record of beating the S&P 500. As of the end of Q3 on Sept. 28, the IBD 50 was up 25.96% in 2018 and the IBD Big Cap 20 had gained 20.62%. By comparison, the S&P had risen 8.99%.

Bases, Breakouts And Buy Zones

Thursday's big market sell-off changed the current outlook to "uptrend under pressure," meaning it's time to be careful about making any new buys. But regardless of market conditions, you should always keep your watch list up to date for when a stronger rally takes hold.

Boeing recently broke out of a later-stage flat base and is now more than 5% beyond the buy point and out of a proper buy range. Union Pacific took a while to gain traction from the buy point it initially cleared on July 26, but it gapped up sharply on Sept. 18 and is now extended.

Stocks near a potential buy zone include Biogen, managed health care stock Cigna (CI) and branded apparel leader VF Corp. (VFC). VFC, which owns Vans, Wrangler, The North Face and other top brands, was featured in the Sept. 18 IBD Stock Analysis after it had made last month's list of new buys by the best mutual funds.

Federal Signal (FSS), which makes sirens and street cleaning equipment, is also working on a second-stage flat base showing a 28.42 entry. Trading within the pattern has been tight, and its relative strength line is within striking distance of a new 52-week high.

CVS is building a first-stage consolidation as it tries to come out of a long-term downtrend.

Stocks Being Sold

Humana (HUM) topped the list of stocks being sold with 22 net sellers (57 funds selling minus 35 buying). ConocoPhillips (COP) (40 selling minus 25 buying) and Target (TGT) (35 selling minus 20 buying) both had 15 net sellers. Farm machinery maker Deere (DE) had the next highest number of net sellers with 13.

Despite the selling, Humana and Target have continued to edge higher. And Deere is trying to complete a new consolidation and may be getting ready to plow through a 161.49 buy point.

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When it comes to growth stocks, Wells Fargo funds' Thomas Ognar is not interested in flash-in-the-pan fads. He seeks stocks whose earnings growth has legs.

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"We're not trying to buy a hot product that will be in fashion (for) a couple quarters or even just a year or two from now," said Ognar, who is lead manager of $4.9 billion Wells Fargo Growth Fund (SGRAX). "We want stocks whose earnings growth is sustainable. And we want stocks whose growth is underappreciated by the market."

He also wants stocks whose growth is robust.

That approach has borne fruit. His fund is up 21.29% this year going into Wednesday. That's about double the S&P 500's 10.6%. It also tops the 15.4% pace on average by his large-cap growth peers tracked by Morningstar Inc.

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His 12.64% average annual gain since he took the fund's helm in May 2002 tops 93% of his direct rivals. It also beat the S&P 500's 9.68% increase.

Growth Stocks: Roadmap To Robust Growth

Some holdings don't look like great growth stocks — at least not yet. Agios Pharmaceuticals (AGIO), which develops treatments for cancers and rare genetic disorders, has been in the red seven years in a row. "We want to see a roadmap to robust earnings growth and sustainability," Ognar said. "We want to see the ability to do that. We want to see some of that game plan already de-risked, especially for health care companies like Agios."

Wells Fargo Funds: Family Tradition

Ognar says he learned a lot about investing in growth stocks from his father, Ronald Ognar, who opened the fund on the last day of 1993 and handed off the reins to his son nine-and-a-half years later.

"Dad was a huge mentor for myself and others on the team," Ognar said. Thomas Ognar and co-manager Joseph Eberhardy learned the ropes as analysts under the senior Ognar, he says. Previous managers Brandon Nelson and Bruce Olson did, too.

Ognar has flexibility in how he can pursue growth stocks. He is not restricted to one market capitalization. "We have exposure to all market caps," he said. The fund mainly holds large caps. But its share of small- and mid-caps is about 43%.

"It's a function of going where the best opportunity set is," Ognar said.

Growth Stocks: Dominant Players

FANG stock Amazon.com (AMZN) is a megacap and the fund's largest holding. E-commerce still has room to gain share of overall retail sales, and Amazon is the dominant e-commerce platform, Ognar says.

In addition, Amazon has shown skill at knowing where to invest. "It's like Wayne Gretsky said about success in hockey," Ognar said. "You have to skate to where the puck is going, not to where it's been."

Likewise, Amazon is shifting its focus to having a wide selection of goods and quick delivery. "They're still competitive in pricing, but that's no longer the lead attribute to consumers," Ognar said.

And Amazon Web Services (AWS) and cloud hosting are additional strengths for the company. Ognar sees those services industrywide growing about 40% annually through 2021. As the largest player in that space, he expects Amazon to be a big beneficiary.

"And lastly they've started to monetize advertising on their retail website," which is a business that is growing and extremely profitable, Ognar said.

Videogaming Is A Cultural Phenomenon

Graphics chipmaker Nvidia (NVDA) is a play in self-driving cars. Ognar also likes the company's roles in data centers and gaming.

"Older people don't realize how big of a cultural phenomenon gaming has become with esports and the social nature of playing with multiple players," Ognar said.

Video games provided 58% of Nvidia's sales in the second quarter. Data centers brought in 24%. Chips that enable automotive self-driving provide only about 5% of revenues. "Chips for self-driving cars offer interesting opportunities, but it will take a few more years before we see (a lot more) sales from cars than now."

A big unexpected falloff in revenue is from chips for cryptocurrency. Growth in gaming and data centers offsets that decline for now, he says.

Electronic payments enabler PayPal (PYPL) is a play on the shift to electronic payments, away from cash and checks. But PayPal also benefits from a trait that credit card giants Mastercard (MA) and Visa (V) — which also benefit from the payment shift — don't have. "PayPal has a dual-sided network," Ognar said. "More than 200 million consumers use it and about 20 million merchants. Few companies have both sides of a network like that."

PayPal should be able to grow its total payments volume by more than 20% annually for several years, Ognar says. "It also has an unmonetized opportunity, Venmo, which is a peer-to-peer payments provider. If they can monetize that, it would be a nice revenue contributor as we move out two to three years."

Boston Scientific (BSX) is a medical devices maker. Ognar likes the diversity of its product lineup. "They've got some next generation products that should help drive growth," he said. In Q2 the revenue mix was 39% from cardiovascular, 31% from rhythm and neurological and 30% from medical surgery.

Ognar added, "We expect mid- to high-single-digit revenue growth over the next three to five years."

IBD'S TAKE: Are you a newcomer to investing who wants to buff up your stock investing skills? Check out this guide for stock market beginners.

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The post Wells Fargo's Ognar Wins By Avoiding Flash-In-The-Pan Stocks appeared first on Investor's Business Daily.

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Looking for a good stock mutual fund? Ideas for your stock portfolio? Check out the MFS funds family's Growth Fund (MFEGX). Top growth stocks have helped the $20 billion portfolio outperform 85% of its large-cap growth mutual fund rivals tracked by Morningstar Inc. this year going into Wednesday.

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And it's been the top performer among U.S. diversified stock funds in the MFS funds' stable over the past three years.

One good way to see how co-managers Paul Gordon and Eric Fischman aim to remain among the pack's leaders is to check under the hood of their top new buys.

Those are growth stocks that this fund is betting on. Names like that can also boost the octane in your own search for individual stock investment ideas.

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The latest roster of top buys by this standout among MFS funds includes CoStar Group (CSGP), MSCI (MSCI), Square (SQ) and TransUnion (TRU). The fund began its current stakes in each during the second quarter.

Since June 30, that group is up. TransUnion has climbed 39%. Square is up 154%.

All illustrate this MFS funds portfolio's investment approach. "We take a long-term approach," Gordon said. "We're building a portfolio of stocks that we think can grow faster than the overall market across economic cycles. And we aim for stocks trading at attractive valuations."

How do Gordon and Fischman land top performing growth stocks at attractive valuations? They're more focused on future valuation than current appraisal. "The portfolio overall trades at a higher next-12-month price-earnings ratio than the market's," Gordon said. "However, the portfolio grows at a faster rate. So when you look at the (projected) valuation in out years, the stocks we're buying trade cheaper on the out years than the market's (valuation)."

You can harvest tasty fruit from the MFS Growth tree. Just remember: Give it time to bloom. In 2016, its 2.21% return topped just 43% of its peer group. "We take a long-term view," Gordon said. "It might just be that year in, year out, the market ebbs and flows. It's over three and five years that we've outperformed the market."

Gordon's been at the helm more than a year. Fischman's been there since April 2002. Since then, the fund's 9.12% annual average has outrun the 7.28% average pace of its peers and the S&P 500's 7.98%, topping about 87% of its direct rivals.

Growth Stocks: Protected By A Moat

CoStar maintains data about residential and commercial real estate, and provides that data to users including brokers, bankers, property owners, property managers and government agencies.

The business is surrounded by a protective moat in the form of the expense and difficulty of amassing such data. For CoStar, now that it has its database, it can sell and resell the information repeatedly.

"We really like database businesses because there can be scale advantages," Gordon said. "And if you or I wanted to start a competitive business, we could not do it. It would take too much time and money."

An MFS Funds Leader

MSCI is a leading provider of financial benchmark indexes and of portfolio risk analysis tools. Its customers are institutional investors around the world.

Gordon and Fischman see MSCI as a leader in its field. It has strong brand name recognition. Any customer who wants to switch to another benchmark provider would have to spend a lot to obtain rights to a comparable index with comparable recognition, the managers say. Those switching costs are MSCI's protective moat.

In addition, MSCI's subscription business model gives its revenue stability and visibility, he says.

Square benefits from the shift to electronic payments from cash and checks. The company's gizmos and software enable small and midsize businesses to use mobile devices to take payments from customers.

And Square has diversified away from just enabling transactions. It also offers customers analytics tools that let them look for useful patterns in their receivables and to monitor inventory.

"They're enabling payments and they're especially strong with micro merchants," Gordon said. "Now they're scaling up to larger merchants."

Square is selling more analytic services to customers. "Square can go back to payments customers with a broader suite of products, and they're finding existing customers receptive. That's meant acceleration in their growth rate and an increase in their total addressable market, which adds duration to their growth."

Growth Stocks: Why TransUnion

Gordon and Fischman like TransUnion because they see it as a leading credit bureau that benefits from a competitive moat. It operates in an industry dominated by a small number of competitors, Gordon says.

In addition, its financial data and credit scores are essential to retailers, lenders and consumers who use them, but cost relatively little, he says.

"Equifax has shown that the industry can survive despite a worst-case scenario," Gordon said, referring to the TransUnion rival whose 2017 data breach exposed sensitive data for about 143 million Americans, according to the Federal Trade Commission. "And TransUnion is in a better position competitively and product mix-wise to grow faster. And it does not have any settlement risk."

Equifax's breach triggered hundreds of lawsuits. Equifax is likely to settle many if not all by paying plaintiffs, based on outcomes of similar class-action cases in the past by other defendants.

IBD'S TAKE: Are you a newcomer to investing who wants to buff up your stock investing skills? Check out this guide for stock market beginners.

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You want your portfolio to outperform the broad stock market, right? Here's how Columbia funds' $3.8 billion Large Cap Growth (GEGTX) has racked up a 14.26% advance vs. the big-cap bogey's 9.52% this year going into Thursday, also outlegging the 14.30% pace by its direct rivals tracked by Morningstar.com. The key ingredient in its secret sauce: growth stocks.

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Leading growth stocks that have helped it outperform include technology stalwarts Adobe Systems (ADBE) and ServiceNow (NOW), which are up more than 50% this year.

Health care leaders Illumina (ILMN) and Align Technology (ALGN) are up 60% and 72%, respectively. Retailers Ulta Beauty (ULTA) and Burlington Stores (BURL) are up 27% and 36%.

Overall, names like those illustrate the fund's strategy of investing in a broad range of growth stocks. Managers John Wilson and Tchintcia Barros look for companies whose potential rates and durations of growth are not fully priced into their stocks' values.

As Wilson and Barros tell existing and potential shareholders, "We identify points of differentiation to develop an investment thesis — our view vs. the Street's view — on fundamental drivers."

The managers also assess each potential stock buy's historic price performance. As they've reported to shareholders, that allows "us to allocate more capital to higher-conviction names and avoid unintended risk."

Growth Stocks: Fund's Secret Sauce

Look at how those live up to their status as leading growth stocks by posting profit gains.

Adobe, which reported on Thursday, beat analysts' estimates for quarterly profit and revenue on Thursday. It was helped by strength in its digital media business, including Creative Cloud products. EPS grew 57%.

The maker of design and publishing software acquired Magento Commerce in June. As IBD reported, that takeover will broaden Adobe's cloud-based e-commerce footprint. But one research firm says Adobe will likely have to find ways to prop up prices for its Creative business — which includes its cloud-subscription-based offerings of products like Photoshop and Illustrator — and further engage existing customers to generate growth.

ServiceNow's EPS growth was 46%, 81% and 123% the past three quarters. The software stock's share price hit a record high Wednesday.

The company offers cloud-based service management solutions for customer service, human resources, security operations and other enterprise departments. The company is benefiting from a continuing shift to cloud services.

ServiceNow is in IBD's enterprise software industry group, which was ranked No. 5 of 197 groups as of Wednesday.

Analysts expect a 55% increase in EPS growth in the current quarter and a 75% jump this year, plus 34% growth next year.

Sales growth is robust too. The software developer has a five-year sales growth rate of 46%.

Growth Stocks: Foreign Invasion

This mutual fund's ranks of leading growth stocks includes Align Technology, whose Invisalign, a clear-plastic alternative to metal braces, debuted in 1999. It's been used by more than 5 million patients in more than 90 countries, IBD reports. The company also makes a scanner that creates a 3D digital image of a patient's mouth, replacing physical impressions.

The company is seeing fast growth in foreign sales and in the teen market.

The company has notched double- or triple-digit EPS growth for six straight quarters, although the pace slowed in the two most recent stanzas. Revenue has grown 27% or higher for nine consecutive quarters. Analysts expect EPS to grow 37% this year.

Burlington, an off-price apparel retailer, has posted quarterly EPS gains of 24%, 59% and 60% the past three frames.

Analysts forecast 51% EPS growth this quarter and 42% for the year.

Once known largely for its coats, Burlington Stores over the years has driven sales higher by expanding its home, beauty and women's sportswear sections, IBD reports.

Those changes have made the chain less vulnerable to seasonal fluctuations and less dependent on sales to customers needing warm winterwear.

IBD'S TAKE: Are you a newcomer to investing who wants to buff up your stock investing skills? Check out this guide for stock market beginners.

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Growth stocks are high octane fuel to Richard Bodzy. He's used them to speed his way as lead manager of his current fund, Putnam Investments' $5.1 billion Growth Opportunities (POGAX), and at his former fund, now $4.6 billion Sustainable Leaders (PNOPX), to outrace the S&P 500 stock index in calendar 2017 as well as the prior three, five and 10 years.

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That makes the Putnam Investments' funds IBD Best Mutual Funds Awards winners. A scant 10% of U.S. diversified stock mutual funds outperformed in all four time periods.

Bodzy and his assistant manager, Sam Cox, stick to a growth stocks roadmap with clearly marked signposts. One sign dictates that they look for stocks of companies whose businesses are growing and which leverage strong top-down themes, such as PayPal's (PYPL) role in enabling mobile payments.

That strategy has led to a portfolio that includes leading growth stocks Amazon.com (AMZN), Apple (AAPL), ServiceNow (NOW), Visa (V) and Adobe Systems (ADBE).

Bodzy, who is 37 years old, talked with IBD about his investment approach from his office in Boston.

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Growth Stocks: How Pros Search

IBD: Do you need a passion for stocks to run a big-time growth stocks fund for a major league fund family?

Bodzy: Sam and I, we're stock junkies. We like to talk about stocks. We do it a good amount of our time. We debate and discuss stocks even when we don't own them.

IBD: What do you look for in growth stocks?

Bodzy: We invest in secular growth. There are three criteria we look for. First, there is our bottom-up orientation. We look for growth in a business, both the level and duration of growth. We try to identify secular trend winners — secular being noncyclical multiyear drivers — with large and growing addressable markets. One example is Live Nation's (LYV) capitalizing on the pop music shift in incentives toward live performances, away from studio recordings.

Second, we look for the ability to redeploy capital repeatedly and successfully across a cycle. We want high and improving economic returns. We prefer capital-light businesses, with the ability to employ capital repeatedly across a cycle and generate the cash necessary to do that.

Third, we look for an ownership culture. We want businesses whose managers are aligned with us as shareholders and act like owners.

IBD: How important is a top-down trend?

Bodzy: We look for companies that marry bottom-up growth with a top-down thematic lens.

Growth Stocks: Four Buckets

IBD: Those top-down themes — how does your pursuit of innovative growth stocks differ from other funds' pursuit of innovators?

Bodzy: The trends we find tend to fit into three or four buckets. We call the first bucket "ideas that rhyme." An example may be Alibaba (BABA) attempting to replicate what Amazon has done in e-commerce or PayPal (PYPL) within payments.

Second, "picks-and-shovels companies." These are toll takers. They don't care which companies in a field win. They take a toll off the total volume by all players. Cell-tower owner American Tower (AMT) is an example.

Third, "disrupters." Those companies often possess a technological advantage or niche that allows them to displace incumbents. This happens most often in health care and tech. Some of our small- to midcap allocation goes to this, but we find them in large caps too.

Fourth, "structurally advantaged companies." These are companies whose moats are highly defensible across the economic cycle, such as Visa and Mastercard (MA).

Putnam Investments: Bodzy's Teammates

IBD: Let's talk about your outperformance over four time periods. What does it take to do that?

Bodzy: I would point to our talented research staff and my assistant Sam Cox. Businesses that meet our criteria tend to lack negative surprises. We spend as much time understanding vulnerabilities of companies we invest in as upside potential. Capital preservation is a big deal to us.

We not only think of the end market as it exists today but how it will look two, three, five years from now and which companies will benefit most from multiyear trends.

Concerned About Amazon?

IBD: Amazon's spending is a big concern for many investors. Do you share that concern?

Bodzy: One big thing about their spending is that it's in their control. They decide how much revenue to let fall to the bottom line.

As multiyear investors, we like the fact that they invest, which will let them sustain top-line growth over a multiyear period. As far as earnings per share goes, it seems to us the lack of margin flow-through is within their control. I can't tell you when they'll allow that flow-through, but we think there's a lot of latent earnings power within their enterprise.

Trimmed Apple

IBD: Does Apple stock continue to uptrend because its secret sauce has become its services rather than a new blockbuster product?

Bodzy: The stock price recently resumed its uptrend because of services and revenue growth. Another piece of their story is their aggressive buyback, one of the largest in the stock market. (The company has bought back almost $220 billion of its stock since March 2012.)

So, most of Apple's earnings growth is coming from its buyback. Their low single-digit top-line revenue profile is decelerating over the next two years. It doesn't stack up that well with other investment ideas.

We tend to find better ideas elsewhere. You mentioned lack of a blockbuster product. The iPhone supercycle, from the iPhone 8 and 10, failed to materialize (in the past 12 months). The (sold) iPhone units were significantly lower than what was forecast a year ago.

And we think consumer electronics are at risk in the current trade dispute backdrop.

IBD: So you've trimmed Apple recently?

Bodzy: Based on our latest filings, our holdings do not match weightings in the Russell 1000 Growth Index on a share of portfolio basis. It's lower. And that continues to be the case.

Growth Stocks: ServiceNow, Visa

IBD: What do you like most about ServiceNow? That it enables customers' systems that otherwise can't talk to each other to connect and talk? Second, that its process is auditable, meaning that the steps in a customer's workflow are logged and can be checked later for accuracy? Or, third, that it has expanded beyond customer relationship management into other services?

Bodzy: All of the above! They have best-in-class economics. They have minimal competition.

Their pipeline looks bullish across regions and product verticals. Management is already running ahead of their 2020 targets.

And they're a prime takeover candidate, given that ServiceNow is self-funding and has a 25% plus free cash flow margin.

ServiceNow epitomizes the structural advantages of software as a service (SaaS). And customers are still increasingly consolidating a variety of IT functions in a single platform. ServiceNow is one of those platforms.

IBD: Why do you prefer Visa over Mastercard?

Bodzy: Both benefit from a multiyear trend away from cash to credit cards globally. Both are structurally advantaged companies, providing one of the only rails for global payments.

For Visa specifically, there's an ongoing shift to higher margin, cross-border volumes. And there's company-specific opportunities from folding in Visa Europe. It should allow the stock to compound earnings at a mid- to high-teens rate over the next few years.

IBD: Is Adobe a good example of a company with a defensible moat?

Bodzy: They are the poster child of a successful business-model transition at scale. And, yes, this is a company with limited competition.

Their subscription sales have a low price-to-product ratio. Subscriptions often cost just hundreds of dollars, which is minimal relative to the value to the customer. ... And, yes, monthly subscriptions require a lower upfront cost for a customer relative to (the older business model of) an on-premise license alternative.

And 80% of their revenues are via recurring revenues, which gives greater visibility to future revenues and earnings. And it limits the downside scenario.

When you think of customized targeted marketing, they are a clear beneficiary, especially over mobile. They have such a lead and competitive advantages that they're going to be successful for a long time.

IBD: Boston Scientific's (BSX) key product is a drug-eluting coronary stent. Why do you like this stock?

Bodzy: They're innovating in a variety of device categories. We're especially bullish in the heart business, where they're a leader in left atrial appendage closure, basically for a stroke.

And they have two new TAVR (transcatheter aortic valve replacement) product launches next year. The point is they have a pipeline of innovation. They offer a rare mix of high single digit organic sales growth with significant margin expansion, which drives low teen earnings per share and free cash flow growth.

And they have specific new products: the Synergy drug-eluting stent; the Lotus Edge aortic valve system; Symetris (a Swiss company focused on minimally invasive transcatheter aortic valve implementation devices); the Watchman (which is a device designed to plug the left atrial appendage of the heart, helping to prevent strokes); and the Eluvia drug-eluting stent.

RealPage: Ownership Culture

IBD: What made you start a stake in RealPage (RP) in the second quarter?

Bodzy: It's a software provider in the multifamily real estate industry. We look for companies with broad exposure to and leadership in a variety of areas. RealPage offers a ton of value to customers in areas such as business intelligence, accounting, payment processing, renters insurance and online payments.

Rental occupancy rates are about 95%, but there is softening in tier 1 markets. Our thesis is that RealPage leasing, marketing and analytics will do better as property managers need price-optimization tools to fill vacancies.

Unlike many smaller software companies, RealPage is high cash generative. And Steve Winn, the CEO and founder, owns over 20% of company shares, so this management has an ownership culture.

IBD: What are the key drivers to Salesforce.com's (CRM) earnings per share growth, which sped up in four of the past five quarters?

Bodzy: Salesforce is somewhat of the gold standard for starting a cloud-based software business that's able to scale and grow and move up to larger enterprises as customers.

They've transitioned from a nice-to-have software application to an essential component for a sales organization. We foresee 20%-plus billings growth for multiple years.

Their margins are in the midteens. We think that can grow to over 30% as the business matures. So for the foreseeable future, the 20%-plus top-line grower — and beyond the core sales cloud, it actually has low penetration into its other clouds — is a highly recurring revenue model, with an ability to close other enterprise deals. It's a category leader in the sales cloud. And it's the de facto incumbent in a lot of verticals.

IBD: What made you start a stake in CoStar (CSGP) in Q1?

Bodzy: CoStar is an industry leader. They provide data analytics to commercial real estate brokers, property owners, managers, lenders and investors.

They're an MLS-like (multiple listing service) repository of data around commercial and multifamily real estate properties and transactions, which go back more than 30 years. (Access) is largely subscription based.

They've taken the data, repackaged it for a variety of customers, offered a variety of analytics and products, and branched out to build a presence in the apartment, land and small- and medium-size enterprises.

This is a toll taker. They're in several markets. And they have limited competition. Also, the founder-CEO is fanatical about the business and owns a lot of the stock.

Intuitive Surgical: Bodzy's Prognosis

IBD: Intuitive Surgical (ISRG) sells its main system at an attractive price, then makes more money by selling consumables over and over, right?

Bodzy: You've got 80% of my thesis. It's an enabler of minimally invasive robotic surgery. It's in the early innings of a durable long-term growth story. And it's got greater than 70% recurring revenues and exceptionally high returns.

About 870,000 surgeries a year are done with their system. I expect the whole market, including ISRG's share, to more than triple within a couple of years.

The concern for investors is the competitive environment. Competition is coming, but the ecosystem around Intuitive's platforms — being able to address a wide range of procedures, using a common interface, standardized instruments and accessories and increasing visualization tools — all present high barriers to competitors' entry.

And it's got a long-tenured management team that act like owners.

IBD'S TAKE: Are you a newcomer to stock investing who's looking for ways to sharpen your growth stocks picking? Start with a simple routine.

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The post Growth Stocks: Which Ones Fuel Outperformance By This Putnam Investments' Manager? appeared first on Investor's Business Daily.

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Led by large investments in Apple (AAPL) and Lowe's (LOW), the best mutual funds placed large bets on several leading stocks over the last three months.

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These top-performing fund managers invested a total of at least $1 billion in Lowe's (approximately $2.55 billion), Apple ($2.12 billion), UnitedHealth (UNH) ($1.88 billion) and Union Pacific (UNP) ($1.15 billion).

Five additional stocks made the $500 million club, including Thermo Fisher Scientific (TMO) ($849 million), Adobe Systems (ADBE) ($733 million) and Ross Stores (ROST) ($535 million).

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Best Mutual Funds Buying Semiconductor, Medical Stocks

The semiconductor sector led the list, with seven chip-related companies earning a spot, including IBD 50 stocks Integrated Device Technology (IDTI) and Nanometrics (NANO). The largest semiconductor investments from the best mutual funds were in Integrated Device Technology (an estimated $84.4 million) and Diodes (DIOD) ($62.2 million).

In addition to UnitedHealth and Thermo Fisher Scientific, four additional medical stocks made the cut. Fifty-five top funds invested approximately $536 million in HCA Healthcare (HCA), and 34 funds picked up $255 million worth of shares in medical testing and diagnostics solutions provider PerkinElmer (PKI).

Retail stocks also had a strong presence, with four retailers joining Lowe's and Ross Stores. Seventy-eight funds invested approximately $402 million in Dollar General (DG), and thirty-eight funds picked up $302 million of shares in Williams-Sonoma (WSM).

IBD 50 And IBD Big Cap 20 Stocks

You'll find several of the stocks being bought by the best mutual funds are also on IBD's S&P 500-beating screens. Apple, which recently became the first company in history to have a $1 trillion market cap, and insurance provider Progressive (PGR) are both on the IBD Big Cap 20.

In addition to Integrated Device Technology and Nanometrics, Adobe has also earned a spot on the IBD 50 list of today's top growth stocks.

Bases, Breakouts And Buy Zones

Many of the stocks on the list above have already broken out and climbed out of buy range. But several are either setting up new chart patterns or are still within buy range.

Adobe is testing support at its 10-week line as it tries to retake a 263.93 entry in a later-stage flat base. The analytics and creative software leader is scheduled to report earnings on Sept. 13. Tyler Technologies (TYL) is also trying to retake a 248.35 buy point that it initially cleared on Sept. 4.

Union Pacific, Thermal Fisher Scientific and payroll processing leader ADP (ADP) are all trading at the upper ends of their latest buy zones.

Payment processor Total System Services (TSS) has just popped into a new 97.82 to 102.82 buy zone. Fixed-wing aircraft and armored vehicle maker Textron (TXT) and oil refiner Andeavor (ANDV) are also both in buy range.

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The post Who Joins Apple, Adobe On Latest List Of New Buys By Top Funds? appeared first on Investor's Business Daily.

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Among T. Rowe Price funds, New America Growth (PRWAX) shows a willingness to start stakes in growth stocks that are still far from being first-string portfolio leaders. But the fund's results are varsity level.

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Top new buys of potential growth stocks included PepsiCo (PEP), Exact Sciences (EXAS) and 58.com (WUBA) as of June 30, according to IBD sister company William O'Neil + Co. They sport modest IBD Composite Ratings of 53, 69 and 61 respectively, on a scale that peaks at 99. Stocks with a Composite Rating of 95 or higher are considered leaders.

Still, since Justin White took the fund's helm on April 1, 2016, the $5.2 billion fund has averaged a 24.19% annual return going into Wednesday, beating 90% of its large-cap growth peers tracked by Morningstar Inc. and the S&P 500's 17.57%.

That's no doubt due to the fact that enough new buys over time turned into leading stocks, such as current top-10 holdings Amazon.com (AMZN), Visa (V), Apple (AAPL) and Becton Dickinson (BDX). All sport Composite Ratings in the mid- to high 90s. Each is up, from 22% for Becton to Amazon's 73%, so far this year.

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Growth Stocks: Seeking Them

Holdings like those reflect the fund's strategy of seeking growth stocks that can grow in value over the long haul. To land equities that can do that, White tries to fish in the right part of the ocean. He aims for U.S. stocks that are in the fastest-growing sectors or that have great growth potential.

That requires investing in companies with certain key traits. One is having a growth rate that exceeds the average of the S&P 500. Another is sporting sound company fundamentals. A third is leadership by effective management. A fourth is trading at a reasonable valuation.

Stocks that meet those criteria tend to be beneficiaries of dynamic trends in technology, social developments, medicine, the economy and business overall. Reflecting the fund's name, such stocks are defining the "new America," as the fund tells prospective and existing shareholders.

Finding stocks that fit that mix is not without peril, however. "The fund may entail above-average risk since growth companies pay few dividends and are typically more volatile than slower-growing companies with high dividends," the fund says.

T. Rowe Price Funds: This Manager's Bets

Look at some names that manager White has bet on.

Amazon was trading above 1,900 midweek. It jumped to a record high on Wednesday as a Morgan Stanley analyst raised his price target to 2,500 for the e-commerce giant, pushing its implied market valuation well past $1 trillion, IBD reported.

Morgan Stanley's Brian Nowak reiterated his overweight rating on Amazon. At 2,500, Amazon would be worth almost $1.2 trillion vs. its current market cap of roughly $956 billion.

Apple — like Amazon, a FAANG stock — was the first company to break through the $1 trillion market-cap level, on Aug. 2. On Tuesday, the consumer electronics giant helped the S&P 500 and the Nasdaq composite rise to new highs. Apple continued its vault into record territory on Wednesday.

A key driver was the expectation that the company's 12th-generation iPhone is on track for Apple's biggest launch since late 2014.

Growth Stocks: Visa

Visa is a recent addition to the IBD 50 list. That's IBD's flagship screen of top growth stocks, with companies showing strong relative price strength and top-notch fundamentals.

The credit card giant benefits from the shift to digital payment from cash and checks. Earnings-per-share growth has accelerating, growing 15%, 26%, 29% and 40% the past four quarters.

Visa ranks No. 1 in IBD's credit card and payment processors industry group. It sports 13 years in a row of annual EPS growth. The consensus forecast of industry analysts is that Visa's EPS will grow 32% this year.

Becton Dickinson, a developer of medical supplies and devices, is another No. 1 stock — in its case, in IBD's medical supplies group. EPS growth has sped up two quarters straight. It has notched three straight years of annual EPS growth.

T. Rowe Price Funds

As of June 30, 2,066 mutual funds owned Becton shares, up from 1,846 on Sept. 30, 2017. While New America Growth's stake had not changed in size in its most recent disclosure, T. Rowe Price funds' $56.2 billion Growth Stock (PRGFX), $58 billion Blue Chip Growth (TRBCX), $31.2 billion Capital Appreciation (PRWCX) and $1.3 billion Global Stock (PRGSX) were among industry leaders boosting their net positions.

Growth Stocks: Rising Downside Risk?

If you are looking for clues about where the market is headed, check out New America Growth's June 30 semiannual report. White noted that downside market risk was rising.

He cited three factors. First was the threat of a trade war. "We increasingly believe that a trade war with China is going to happen," not simply to "decrease the trade imbalance between China and the U.S.," he wrote.

He added that President Trump's "true intention is to contain the rise of China."

The second factor fueling downside risk would be a peak in corporate earnings-per-share growth. It will be hard for many companies' comparative earnings to keep rising once the initial benefits of tax reform wear off, he wrote.

Third is a breakdown of synchronized GDP growth among a large number of markets. Some markets have already started to lag. Uniform growth among many markets was a rarity, he wrote. For reasons like that, New America Growth tends to be underweight in cyclical stocks that are sensitive to slowing industrial production, he added.

Because of heightened market risk, "The portfolio remains anchored in durable growth companies — those with the ability to increase revenues and earnings regardless of the global economic environment," White wrote.

IBD'S TAKE: Are you a newcomer to investing who wants to learn how to put your money to work? Start with a simple routine.

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You Need This Much Retirement Savings At Your Age And Income

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The post Growth Stocks: One Of The T. Rowe Price Funds That Wins By Targeting Them appeared first on Investor's Business Daily.

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Individual investors can pick up pointers from how the Big Money invests. So check out the similar trades in some key stocks that two mutual fund family titans — Fidelity Investments and Capital Research and Management, parent of American Funds — made in the second quarter.

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The funds' moves are according to CFRA, a leading independent research firm. CFRA also specifies key stocks in which the fund giants made contrary moves, one buying while the other trimmed.

Dow Jones component UnitedHealth Group (UNH) was one stock that both fund family franchises bought in Q2. Capital Research's total share count rose 8% to 72 million shares in the nation's largest insurer. Fidelity boosted its share count by 4.8% to 46 million shares.

As IBD recently reported, UnitedHealth earnings are powered by the industry's most diversified set of health care assets. Its managed care division has been seeing double-digit revenue growth from Medicare Advantage and Medicaid. Its OptumHealth services unit served 91 million people at the start of the quarter. There's also OptumInsight, the health care technology and consulting business. And the company has OptumRx, its prescription benefit management unit.

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The two groups also took action on Wells Fargo (WFC). Fidelity cut its share count 14% to 93 million. American Funds trimmed its share count by 1.2% to 268 million.

Some investors and analysts still await clearer signs that the bank has under control the scandals surrounding its past sales practices.

Fidelity And American Funds: Contrasting Trades

The fund families went in opposite directions on Facebook (FB). American Funds beefed up its share count by 44% to 96 million shares. That was up from 67 million at the end of Q1, and up from 53 million as of Dec. 31.

Fidelity sees Facebook differently. The Boston-based fund family trimmed its Facebook stake by 0.9% in Q2 to 97 million shares. Its been pruning its exposure for two years, CFRA Director of ETF & Mutual Fund Research Todd Rosenbluth wrote to clients.

Fidelity's all-time peak stake was 131 million shares as of the end of March 2016.

Facebook said late Wednesday that another 4 million users may have had their data misused by a third-party app. That's the latest black eye for the social media giant. Shares plummeted July 26 after Facebook's Q2 missed estimates, and the company was cautious about its revenue growth.

Fidelity And American Funds: Their Netflix Moves

The fund families also went in opposite directions on Netflix (NFLX). Fidelity increased is stake by 8.8% to 21 million shares in Q2.

American Funds cut its stake in Netflix by 4.6% in the June stanza to 47 million shares. That continued its trend of selling Netflix shares that began in early 2017.

Wall Street has high expectations for the video streaming service in the second half of the year, as a William Blair analyst told IBD.

How Decisions Are Made

Unlike some mutual fund families that centralize decision-making on stock sell and buy decisions so that all of their funds buy and sell the same securities, Fidelity and American Funds let their stock mutual funds choose their own buys and sells. Still, decisions may reflect the consensus of the fund family's pool of analysts as well fund managers' own ideas.

"Our portfolio managers operate independently within each fund (within the investment objectives of the fund)," a spokesperson for Capital Group, parent of Capital Research and Management, told IBD. "Each individual portfolio manager is expected to act on his/her highest convictions. Each fund is divided into what we call 'sleeves' or portions that are managed independently by the portfolio managers with diverse backgrounds, ages and investment approaches. What's also unique is that there is one sleeve, run by our investment/research analysts who also can act on their highest convictions."

American Funds and Fidelity were the second and third largest fund families as of July 31. Their $1.599 trillion and $1.556 trillion in total net assets, respectively, trailed only Vanguard's whopping $3.643 trillion, according to Morningstar Direct.

American Funds runs such well-known funds as $193.3 billion Growth Fund of America (AGTHX).

The $131 billion Contrafund (FCNTX) is Fidelity's largest actively managed stock mutual fund.

IBD'S TAKE: Are you a newcomer to investing who wants to learn how to put your money to work? Start with a simple routine.

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