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Seven Stocks to Appreciate
by Steven Goldberg  Harry Lange stands out at Fidelity not just because he's tall, but also because of his age. "I'm twice as old as everyone else," jokes Lange, 52, a balding, soft-spoken Midwesterner. He's twice as good as most of the other managers, too. Fidelity Capital Appreciation fund (FDCAX) is one of the firm's very best.
Lange says he's loved picking stocks ever since he was 8 years old, when, believe it or not, he joined an investing club. "But I grew up in Michigan, and I didn't know you could make money investing. I thought it would always be a hobby."
Indeed, Lange worked 13 years as engineer at GM before switching careers. He got an MBA from Harvard and worked for Wellington management as analyst before being hired by Fidelity in 1987.
He took over Capital Appreciation in 1996 and trailed other large-cap growth funds until 1999, when he hit his stride.
Over the past five years, the fund has beaten the Standard & Poor's 500-stock index by an annualized two percentage points and ranks in the top 6% among its peers.
No, the fund essentially hasn't made any money in those five years. Then again, neither has any other large-company growth fund.
But I think, and so does Lange, that the tide is ready to turn toward large-cap growth stocks.
Looking at price-to-sales ratios and PEG ratios (P/E ratios divided by estimated earnings growth rates), large growth stocks are cheaper versus large value stocks than they have been at any time in the 30 years that such statistics have been kept.
"There's almost no premium now for growth stocks over other stocks," Lange says.
Selective on tech
The sectors he likes: technology, which is almost 40% of the fund, biotechnology and medical devices.
In technology, Lange thinks investors need to be selective. Although tech stocks are cyclical, this up cycle won't lift all companies.
He particularly likes companies involved in storage. "You can never get enough storage," he said. "Consumers are downloading so much more video and music, and all of it needs to be stored."
(Fidelity managers generally won't talk about stocks. Lange would only talk about his top holdings as of the December 31 year-end public filing. So there is a chance he may have changed his mind on these stocks since year end, perhaps even sold them. The fund typically holds stocks for two years.)
One of his favorites was Seagate Technology (STX), which makes disk drives for computers, handheld devices, portable music and game players. "Seagate is the number one company in this area, and most of its products are proprietary," he said.
Lange also liked EMC (EMC), which is the leading storage provider for corporate users. He noted that companies, too, are storing more e-mails and data, for compliance and other reasons.
KLA Tencor (KLAC), another favorite, provides inspection equipment for semiconductor fabrication. More of this equipment is needed, Lange said, as semis get smaller and are put onto bigger wafers. KLA's equipment "can detect things like particles of dust that didn't matter before."
Teradyne (TER) also does testing on semiconductors. It's the world leader. "Even as semi prices go down, demand goes up. Eventually, the companies will have to order testing equipment."
Biotech and other picks
In biotech, Lange liked Genentech (DNA). He believes big biotech companies like Genentech are posing increasing competition to pharmaceutical companies. The companies are leaner, and there's more focus on drug discovery.
Outside of technology, Univision (UVN), the Spanish-language broadcaster was un favorito. His argument: Big advertisers are just beginning to give Univision credit for its increasingly affluent demographics.
And he liked FedEx (FDX), which he sees as a beneficiary of increased world trade.
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