Finding Gems In The Middle Of The Rubble Market | Investor Business Diary



For many individual investors, the correction of the coronavirus stock market has been a bewildering time to seek advice on how to invest. That does not mean that it was not fruitful.




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Whether you’re looking for advice on finding a suitable mutual fund for you or individual stocks, the managers of many of the best mutual funds have been setting up a clinic on how to invest.

The $ 4.3 billion managers of Invesco Oppenheimer Discovery Mid Cap Growth (OEGYX) are a case in point.

Senior manager Ronald Zibelli and co-manager Justin Livengood bought and added stocks in stocks they already liked, which fell into irresistible valuations on the correction. “There were opportunities in both directions,” said Livengood. “We cut some of our favorites because they exploded in size.”


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In other words, the fund cut some holdings because its market limits (price multiplied by the outstanding shares) grew too much for a medium capitalization fund. It cut positions in others because they exceeded the fund’s usual 3% limit on weights for individual holdings, Livengood says.

How to invest: what the doctor ordered

Masimo (MASI) is an excellent example of Livengood and Zibelli’s approach to how to invest.

The stock is a long-time holding whose share price soared amid the coronavirus stock market correction. The company manufactures patient monitoring equipment. “When a nurse or doctor places a clip-on device on a patient’s finger that tracks heart rate and oxygen, that is almost always Masimo’s,” Livengood said. “We’ve had it for a long time. It’s a great business run by a great management team, with strong single-digit annual revenue growth. But now that is accelerating due to the coronavirus situation.”

Hospitals have greatly reduced elective medical procedures to dedicate resources to the coronavirus. “So they’ve lost revenue from all those hip and knee procedures,” Livengood said. But all Covid-19 patients need to track their heart rates and oxygen levels, usually with a fingertip pulse oximeter. “That’s right in the Masimo alley. The strong demand for its products has already strengthened.”

In the first quarter, the fund began to increase its stake in Masimo. “We owned these shares for three or four years,” said Livengood. “It had grown to one position this year. We added in February and March because by the end of February it was clear that the coronavirus would likely reach the United States and affect other parts of the world. It could be an incremental asset for Masimo. And the results of the First quarter earnings were significantly better than people expected, in part because of the coronavirus. “

The stock market’s pre-coronavirus spike was on February 19. At its lowest level of correction, Masimo’s shares lost 21%. But now the shares are up 32% since February 19. The S&P 500 is still down 15%, as of Thursday.

To date, Masimo is up 52% ​​versus an 11% loss for the S&P 500 and a pullback of nearly 9% on average for the fund’s mid-cap growth rivals tracked by Morningstar Direct.

Document signing in the era of social distance

DocuSign (DOCU) is another example from the Livengood-Zibelli playbook on how to invest.

The fund began its participation in DocuSign in March.

“We participated in their IPO more than two years ago, which was very successful,” said Livengood. “Because of the valuations, we finally got out. But we kept seeing it. As soon as it became clear that we would have restrictions on how people can operate their lives normally, we wanted to get back in. Secure signing of remote documents and transaction management is clearly a a winning service. “

Livengood hopes DocuSign will retain its appeal even after the restrictions of social alienation are eased. “As people get used to a service like Docusigning, they won’t want to go back to the old way. It’s efficient. You can register it, track what was signed and when. It’s really innovative.”

From the general peak of the market before the coronavirus on February 19, DocuSign shares lost 30% at their lowest correction level. But now the shares are up 27% from February 19.

DocuSign is up 56% to date.

Avoid self-inflicted wounds

Dexcom (DXCM) also illustrates the idea of ​​Invesco Oppenheimer Discovery Mid Cap Growth managers on how to invest.

A longer-term stake, Dexcom shares lost as much as 38% amid the correction. But since February 19, shares have risen 24%. They are up 68% to date.

The company manufactures a continuous glucose monitoring (CGM) system. CGM eliminates the need for diabetics to repeatedly injure a finger to draw blood. Instead, Dexcom provides a body-worn monitor.

Investors view the company as one whose income is not dependent on a rising tide in the broader economy.

Additionally, the company’s revenue is recurring and more stable than revenue that depends on new transactions.

“Once you start using CGM like Dexcom’s, it becomes part of your life and you don’t want to live without it,” Livengood said. “It helps control chronic disease. It provides a better quality of life, not just because you don’t prick your finger. You deal directly with Dexcom. Sensors are shipped to you.”

Dexcom has a tail wind. The number of diabetics is growing. “That is not going to change because we are all quarantined at home,” Livengood said.

Many diabetics are likely to have an additional incentive to use a CGM because they know that their disease seems to make them more vulnerable to Covid-19, Livengood says. That helps motivate them to stay as healthy as possible. “It won’t have a dramatic impact on the company, but anyone with type 1 diabetes will think a lot about using a continuous glucose monitor.”

Type 1 diabetics do not make insulin, which controls the level of sugar in the body.

General approach on how to invest

Whether the market is fluid or turbulent, Livengood and Zibelli have a basic formula for how to invest.

“We invest in high-quality growth companies with secular leadership characteristics and excellent leadership teams,” said Livengood. “Our intention is to be a relatively long-term shareholder. We are not trying to make calls to the market. We are looking for issues that persist in market cycles.”

Livengood says investing in high-growth companies can lead to expensive stocks.

That can be risky. Therefore, managers are quick to sell when signs of trouble arise. “We try to manage our risk through a series of selling disciplines and other risk mitigation strategies, including diversification,” said Livengood.

How to invest: the proof is in your register

The fund’s general approach to investing has worked well for the fund.

The fund is a winner of the IBD Best Mutual Funds 2020 award. The fund exceeded the S&P 500 in the 2019 calendar, as well as during the three, five and 10 years that ended on December 31.

During this coronavirus-annoyed year through Wednesday, the fund’s 4.12% retracement is less than half the overall market loss. And it recovered 34% from its March 23 low versus the S&P 500’s 30% rise.

Merger result

The fund is part of a consolidation that saw Invesco Mid Cap Growth acquired on April 17 by Invesco Oppenheimer Discovery Mid Cap Growth, whose name the merged funds now have.

Basically Invesco (IVZ) acquired the Massachusetts Mutual Life Insurance affiliate OppenheimerFunds in May 2019. The redundant funds are merging. Invesco is considering removing Oppenheimer’s name from the funds, including Mid Cap Growth, at an indecisive time in the future.

Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips on personal finance and strategies from the best mutual funds.

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