Growth Stocks That Fuel This Prudential Mutual Funds Manager’s Outperformance

Rebecca Irwin and her fellow Prudential mutual funds co-managers have done well by sticking to their best ideas in growth stocks. Their fund, $618 million PGIM Jennison Focused Growth Fund (SPFZX), held just 30 names as of Aug. 31.




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Through month-end, so far this year the fund’s 22.46% gain topped 92% of its large-cap growth peers tracked by Morningstar. And it had more than doubled the S&P 500’s 10.56%.

And as of Dec. 31, the fund managers had outperformed the S&P 500 for the calendar year as well as the previous three, five and 10 years.

That four-for-four outperformance makes the Prudential mutual funds’ portfolio an IBD Best Mutual Funds Awards winner. Merely 10% of U.S. diversified stock mutual funds achieved that.

Irwin joined Jennison Associates, a branch of PGIM, which is part of Prudential Financial, 12 years ago. She’s been a manager of Focused Growth for a year and a half.

Irwin didn’t start out in the financial field. Before becoming a financial analyst and then portfolio manager, she practiced corporate law after earning two law degrees.

Prudential Mutual Funds’ Jennison Team

Now she is part of a team under the Prudential mutual funds umbrella that includes Jennison founder “Sig” Segalas, Kathleen McCarragher and Natasha Kuhlkin.

Irwin, who will turn 48 years of age later this year, talked with IBD from her office in Manhattan about how she pursues growth stocks.

She spoke about such leading growth stocks as Nvidia (NVDA) — and how the chipmaker has built a protective, competitive moat for itself. She also explained why Amazon.com (AMZN) is the fund’s largest position; how Illumina (ILMN), which makes complex gene sequencing laboratory machines, is growing its consumer-oriented sales; and what Boeing (BA) has to fear from China.

In the far-ranging conversation, she touched on what societal trend Mastercard (MA) is helping to drive, and what she likes and dislikes about Alphabet (GOOGL).

A-class shares (SPFAX) of the fund can be bought with a $2,500 initial investment.


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IBD: How does your unusual career track help you as a money manager?

Rebecca Irwin: Earning my law degree and practicing law helped me become a disciplined and critical thinker. This is very helpful when thinking through investment theses and decisions around investments.

I have now worked in this industry for 20 years, and in that time I have learned a lot on the job. As an analyst I have covered global health care, internet, consumer discretionary and consumer staples companies. This experience is very valuable as a portfolio manager.

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Growth Stocks: Nvidia’s Driver

IBD: Many investors think Nvidia’s strength is its chips for self-driving cars. But video gaming and data centers are more important to the company now, aren’t they?

Irwin: You’re correct. Gaming is the most important revenue driver. But this company sells into three large and expanding markets: gaming, automobiles, data centers. They’re almost without competition.

The size of those segments is in billions of dollars. Nvidia has built a deep competitive moat across those key business segments.

The market has consistently underestimated the rate and durability of their growth. This is a stock that should work a long time. We’re pretty significantly ahead of what the Street thinks it can deliver on its top and bottom lines.

Growth Stocks: Amazon’s Ecosystem

IBD: I’ll go out on a climb: You’re satisfied that enough of Amazon’s spending leads to new sources of revenue. Am I right?

Irwin: You know me well already. This is our largest position. In many ways we’re just beginning to see the power of Amazon’s ecosystem. Last month they delivered quarterly margin of over 5%.

Their business in the cloud continues to grow more quickly than anticipated. And they’re just getting going on advertising, another high-margin business. And they’re just seeing what can be done internationally in India and other emerging markets.

IBD: Many investors are disappointed with how Amazon’s margins compared to Facebook’s 45%.

Irwin: In Q2, Amazon delivered meaningful margin expansion. The company’s two highest margin businesses, AWS and advertising, are now growing fast enough that we are starting to see the impact on the company’s overall margins.

While Amazon’s margins are not nearly as high as Facebook’s, we don’t think that it makes sense to compare the margins of an advertising business (FB) to the margins of an e-commerce business (AMZN). As AWS and advertising growth continue to outpace the company’s e-commerce growth, we expect to see margins continue to expand.

IBD: Illumina (ILMN) is a leader in its fields, and you like that, right?

Irwin: They’re the undisputed leader in gene sequencing technology. Their end markets are growing rapidly. They’re strong in areas like diagnosing and treating patients in reproductive health and oncology.

IBD: They’re even indirectly in the consumer space, since it’s their gene sequencing machines that are used by genetics testing services such as Ancestry.com, right?

Irwin: They do have a strong consumer end market as people want to understand their ancestry. They have a fantastic razor and razor blades model (in the form of lab equipment whose consumables must be replenished). They sell to consumers as well as labs. That delivers nice margins for the company.

Growth Stocks: Trade War Impact

IBD: You like Boeing (BA), but is it badly exposed to possible trade wars with China and Europe?

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Irwin: Boeing has a secular tailwind. More people are traveling. It’s a strong cash flow story.

They’re investing a lot, but that’s flattening relatively so we’re seeing strong return on invested capital.

Like many companies, they are exposed to trade wars. We’re aware of that macro, but we’re focused on bottom-up fundamentals. We try to manage risk through position size and (adding to stocks) on the margin that might be a little less exposed to trade wars. You can see that in our ownership of medical technology names like Illumina and Intuitive Surgical (ISRG) and pet care diagnostic companies like Idexx Laboratories (IDXX).

IBD: Mastercard gives you exposure to the shift toward digital payments, right?

Irwin: We are excited about the full ecosystem of business models and companies coming out of digital payments. Mastercard benefits from this movement, and it’s a driver of the move.

They have a near duopoly with Visa (V). They have strong pricing power. They deliver sustainable, predictable growth. They have growing opportunities with digital and business-to-business service, emerging markets, cross-border service. We expect their low double-digit growth to continue for a while.

Growth Stocks: How Netflix Spent Its Summer

IBD: Netflix (NFLX) is strong. So why did it retreat from its June high this summer?

Irwin: We agree that Netflix is fantastic. They give consumers what they want, when they want it.

They sputtered this summer because they were a victim of their own early success. They’ve done so well that they paused. But longer term we think this is a stock that will do really well.

IBD: What do you like best about Adobe (ADBE)?

Irwin: We really like companies driving the move from traditional software to the cloud. And we like companies transitioning to subscription revenue. That lets them upsell off their revenue base.

They’re proven they have pricing power and expanding opportunities. They can deliver strong top-line growth and bottom-line growth.

IBD: Salesforce.com (CRM) is part of that shift too, right?

Irwin: Moving from traditional software to demand-driven software lets companies connect with their customers in a demand-driven way, all from their smartphones if they want.

That lets Salesforce expand into areas like analytics. Management has balanced top-line growth with margin expansion, and the market is rewarding them.

Growth Stocks: Not Just Another Retailer

IBD: France’s Kering is a fashion conglomerate that owns brands like Gucci, Saint Laurent and Balenciaga. Why isn’t this just another retailer that’s vulnerable to online competition?

Irwin: Consumer companies that will survive e-commerce competition will be those with strong brands, pricing power and control over distribution. Luxury companies check all of those boxes.

IBD: What do you like best about UnitedHealth Group (UNH)?

Irwin: It plays a nice diversification role in our portfolio. They have diversified offerings, which let them adapt to changing government regulations and capture opportunities.

Growth Stocks: Trump Threatens Alphabet

IBD: What do you like and dislike about Alphabet?

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Irwin: The threatened regulation (by President Donald Trump due to what he called bias by the Google search engine) had the market worried, but there’s been no discernible impact on Alphabet.

And we’re seeing the power of monetization of YouTube, but we have not begun to see the monetization of Waymo (a subsidiary that develops self-driving technologies).

Prudential Mutual Funds: Latecomer Excels

IBD: You’ve paid your dues in the trenches as an analyst. You also have experience covering stocks abroad, right?

Irwin: In London, I got to understand European luxury names. I spent time here covering U.S. consumer discretionary names like Nike (NKE). I’ve covered internet stocks. I still do. That includes Chinese internet stocks like Alibaba (BABA) and Tencent (TCEHY) and Mercadolibre (MELI) in Latin America.

IBD: Do you still wear two hats?

Irwin: Yes, I’m an analyst here — for consumer discretionary and some internet names — as well as a portfolio manager. That gives me a relatively deep knowledge of a broad set of topics.

IBD: Tell me about your unusual path into money management. You earned law degrees from the University of Toronto and Harvard after majoring in economics as an undergraduate. How did you end up as a money manager?

Irwin: When I completed my masters at Harvard, I moved to New York and worked a year and a half practicing corporate law. I loved law school but not the practice of corporate law. That led me to explore what was next for me.

I was drawn to the idea of equity research. I liked the idea of exploring new industries, new companies, of talking to intelligent people about companies they built. It seemed like an intellectual luxury.

IBD: How old were you when you switched professions?

Irwin: I was 27 when I stopped practicing corporate law and began working at Salomon Smith Barney.

IBD: What strengths do you bring to your work?

Irwin: I don’t mean this as self-promotion, but my training as a lawyer and my work on the sell side and the buy side have been helpful. (Sell side analysts work for a brokerage and recommend trades to institutional investors. Buy side analysts work for asset management firms and recommend trades to their own firm’s portfolio managers.)

I am an analytical, independent thinker. I’m a decisive person. Those qualities are helpful in this industry. They allow you to be against the grain, to not be afraid of looking wrong in the short term while a thesis plays out in the long run.


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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