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Lessons From the Large Caps


Why portfolio manager Joe Milano loves tech and health care, but not financials.

Minyanville: So what do you see?

Milano: I look at health care as to what it could look like over the next couple years. The economy is not going to rip. From a big picture standpoint, health care will look relatively attractive to people.

Minyanville: What about the ambiguity of health-care reform?

Milano: The market doesn't like the uncertainty. But the market can absorb anything that comes out of Washington, actually. And I think it is pretty clear that whatever does come out of Washington will not be the worst-case scenario. So, I think that once we get some certainty as to what the plan looks like, it almost doesn't matter what the plan is. Third, when I look name by name, there are just more companies in health care that are intriguing to me.

Minyanville: You're a fan of St. Jude Medical (STJ).

Milano: Yes, it's a high-quality company that should grow mid-teens. It's not an expensive stock. I am upping my position. There are lots of situations like St. Jude where I can buy them when people hate them and make good money over time.

Minyanville: How about Medco?

Milano: Medco is a potential beneficiary of health-care reform. The whole idea of reform is to cut costs in the system. We pay too much for it. Generic drugs are a clear way to do that. Medco's mission is to convert people from branded drugs to generic drugs when the generic is available. It's a pretty clear and simple thesis. The trend line for generic drug use is up and to the right. Medco is a leader in that space.

Minyanville: What about health care IT stocks?

Milano: I do like companies like Cerner (CERN) and Allscripts-Misys Healthcare Solutions (MDRX). There is big stimulus money behind trying to digitize doctors' offices and hospitals and that is a theme that will stay with us for at least a couple years. So, again, people might get nervous and question what I'm doing in the middle of this health-care reform, but I think companies like Medco and Cerner could be beneficiaries to reform rather than vulnerable to it.

Minyanville: Financials aren't big area of emphasis for the portfolio.

Milano: I have avoided big bets in financials. I'm not convinced that we're totally out of the woods in terms of the bad news coming out of the financial sector. We still haven't seen the worst of what will happen in commercial real estate, for example.

Minyanville: How are you playing consumer discretionary right now?

Milano: I own Electronic Arts (ERTS), (PCLN), Carnival (CCL), Advance Auto Parts (AAP), Whole Foods (WFMI), and I recently started buying a position in Harman International Industries (HAR). But I think we are in the later innings of that sector being a good sector, not the early innings.

Minyanville: Finally, let's talk about agriculture. Why should I like Monsanto?

Milano: The long-term theme around agriculture is very positive. When developing countries build a middle class, people shift to protein-based diets which require more corn and soybeans. It's pretty clear to me that the demand side for the types of seeds Monsanto sells will be strong. Also, what the company is really selling farmers is technology to help their acreage be more productive. That's important because there just isn't that much farmland left in the world to tap.

Minyanville: How did you deal with the stress of running a portfolio during the market meltdown?

Milano: After seven years at this job, I have confidence in my process, and the process said to buy the highest-quality companies I could that would grow over a multi-year basis. It was a scary time, but I focused on the opportunity, and the potential to make a lot of money in these stocks. That's what I told myself every day and it has paid off. I learned that if you keep a level head, while other people are freaking out, you can pick some things off pretty nicely.

Minyanville: Thanks for your time, Joe.
No positions in stocks mentioned.
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