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Google, LKQ, Tesla: Stocks A Marsico Manager Likes

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Brandon Geisler wants to return $1 billion Columbia Marsico 21st Century Fund to its glory years, which pretty much ended in 2007.

Geisler replaced former manager Cory Gilchrist on Oct. 1, 2011.

Gilchrist left after a failed bet that financials would outperform coming out of the 2007-09 crash. In the last five years of his tenure, his average annual return was -2.72%. That lagged 88% of his peers tracked by Morningstar Inc.

Since taking the helm, Geisler has steered the fund to a 24.52% average annual gain through July 31 vs. 23.9% for its large-cap growth rivals and 27.07% for the S&P 500.

Geisler has used more market-cap flexibility in seeking buys. He has also tilted toward secular growth stocks and away from cyclicals.

He discussed his approach with IBD from his office in Denver.

IBD: How have you changed the fund since becoming manager?

Geisler: We had a big position in financials when Cory was running the fund. We've reduced that and looked for more growth names.

We really wanted to get back to what the fund was, an all-cap fund. And we wanted to stretch ourselves to get small- and midcap knowledge. Also, we've gotten less cyclical and more secular. That's the single biggest change.

IBD: What are examples of your approach?

Geisler: United Rentals ( URI ) is a cyclical. They're a provider of construction equipment. They need nonresidential construction to improve to make money. In contrast,Google ( GOOG ) andLKQ ( LKQ ) drive growth no matter what's happening in the broader economy.

IBD: You've stepped up efforts to foster team spirit. How so?

Geisler: Whether someone is a PM or an analyst, we're all in this together. I want people to think creatively.

We have an industrials analyst. He says his dad is a headhunter who can't live withoutLinkedIn ( LNKD ). We want to learn about ideas like that, which may be outside his area of specialization.

Tom (Marsico) often says to an analyst in one industry to go to conferences in other industries. (Marsico is the founder, CEO and chief investment officer of Marsico Capital Management.) We want to discover links between businesses. When the weather is bad on the East Coast, our guy covering retail sees lots of inventory and lots of discounting. That also means commercial construction will be down, which affects rental rates for construction material, which can hurt a United Rentals.

IBD: To run this fund, why did Tom Marsico choose someone who had never run a fund before?

Geisler: For his perspective, you'd have to ask him. From my perspective, it was because I showed consistency as an analyst, who covered a lot of spaces. A lot of my ideas made it into Tom's fund.

I've also tried to be an ambassador for the firm.

IBD: Would you say Marsico has been your mentor?

Geisler: Tom's been a very good mentor to me in thinking through different things.

IBD: How does your approach differ from Tom's?

Geisler: I run this with a little more diversification than Tom's Focus portfolio, which has 20 to 30 holdings (32 as of June 30). I try to run this portfolio with 30 to 50 (54 as of June 30). As a firm, we try to run concentrated portfolios.

Roughly 15% of my portfolio is companies going through a lifecycle change.Yahoo ( YHOO ) is one.

Morgan Stanley (MS) andCitigroup (C) are others.

Another 15% roughly is at the other end of the spectrum: aggressive growth companies likeTesla (TSLA). We have a few biotechs that are aggressive growth, likeAlkermes (ALKS). Another aggressive growth name is LinkedIn.

In the middle is the bulk of my portfolio. Those are core growth companies.

As aggressive growth names mature, they become core names and get replaced in the portfolio by newer aggressive growth names.

About 33% of the portfolio is large cap. About 50% is midcap. The rest are small caps.

IBD: You get a large-cap growth label from Morningstar because of the fund's holdings over a long period.

Geisler: Yes. And one more thing about how I work with Tom. I try to work with him on his best ideas for my large-cap portion.

So there's some overlap with Focus Fund.

When the economy is doing better, we'll plus-up our small caps. Tom also co-manages Global Fund , which buys small- and midcap ideas. So I get to learn about those stocks as well.

IBD: You like certain stocks with a network trait. What does that mean?

Geisler: I like businesses that are network based in one form or another because that creates a moat protecting them from competitors. And I like businesses with recurring revenue.

Look at stocks I own.MasterCard (MA). They are a giant payment network.

LKQ ( LKQ ) runs a giant network of auto parts that repair shops and insurers use. They can often get parts to repair shops faster than original equipment manufactured suppliers can. And their parts are often cheaper.Grainger (GWW) has a distribution network for maintenance and repair supplies (for commercial buildings).

And Google is another. Their network consists of information that people search for.

Creating each network took time and a lot of upfront capital expenditures. Once it is in place, it is hard to disrupt. And it is hard to compete with it. That keeps competitors from coming up quickly. And once you have a network, economies of scale let you price better, which boosts profitability.

IBD: Biogen Idec (BIIB) had 41% and 26% earnings per share growth the past two quarters. Why have you trimmed in some recent quarters?

Geisler: Our cost basis is under 90. The stock is trading around 220. So its weighting more than doubled. We wanted to get back to a 3% weight, so we sold some.

We still think there's upside. They're a leader in neurologic medicine, a leader in multiple sclerosis drugs. Their new drug, Tecfidera, can be taken by pill at home, instead of injected at a doctor's office. So Tecfidera should take market share.

We bought ahead of key trials.

As a company, we invested in our own health care stocks team. That helped get us comfortable that the attributes of this drug were strong.

IBD: Chipotle Mexican Grill's (CMG) EPS growth has slowed. What's your take?

Geisler: Management is not focused on growing too quickly. We like that.

Starbucks (SBUX) grew like weeds. When that deteriorated, that was a precursor to issues they had in 2008 and 2009.

Chipotle is growing stores at 12% to 15% a year. And they have tremendous brand loyalty, strong management and exceptionally strong unit economics. That's each store's sales divided by the cost to build the store. Their profitability by incremental cap ex is one of the highest in the industry.

They have 1,200 stores. We think that can get to 3,000.

They're in the early stage of expanding into Europe and Canada.

And they're developing a second concept called ShopHouse, with Southeast Asian cuisine.

They have natural and organic food products, which cost more. They're not passing those costs on to customers now. They prefer to build their customer base.

IBD: You began your current stake inFleetCor Technologies (FLT) during Q1.

Geisler: This is another network idea. They've got one domestically, and now they're transferring it globally.

They've made acquisitions in Russia, Europe and Brazil.

And FleetCor is not just a payment provider, unlikeVisa (V) or MasterCard. By giving truckers fuel or hotel or food cards, they can track where money is spent and help customers save 15% to 30% by removing opportunities for fraudulent expense vouchers.

They can also tell a fleet operator how a particular driver operates and suggest more efficient routes. They call that feedback fleet telematics, which is an ancillary service that they anticipate selling in the future.

IBD: What made you addGreen Mountain Coffee Roasters (GMCR) in Q1?

Geisler: The management change was the trigger. Brian Kelley came fromCoke (KO).

We thought there would be improvements in efficiency. And Kelley hopes to reinvest efficiency savings in new products.

Toward next Christmas season, we'll see new brewing machines for specialization of beverages. That will differentiate them from rivals.

Green Mountain's machines will customize water temperature for specific grinds of coffee. Actually, this is another network. They have first-mover advantage.

That makes it difficult forNestle (NSRGY) orKraft (KRFT) to break down that door. But Green Mountain already has relationships withDunkin' Donuts (DNKN), Starbucks, (ConAgra's (CAG) Swiss Miss and others.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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