Among Carillon Scout Mid Cap Fund’s (UMBMX) holdings, such stocks as Abiomed (ABMD), Arista Networks (ANET) and Comerica (CMA) are providing enough lift to keep the fund ahead of its midcap blend fund peers and within shouting distance of the S&P 500
But it’s the fund’s longer-term performance that catches the eye. It’s outperformed both its peers the S&P 500 in the past one, three, five and 10 years ended Dec. 31. It rose 24.02%, and an average annual 14.17%, 16.35% and 11.13% in the past three, five and 10 years.
They hold Abiomed ABMD
IBD: Abiomed has also run up, but it continues to post big earnings increases. What’s the potential for this stock and what are the risks?
Dunkerley: For the long term, we think Abiomed has great prospects. They have a strong competitive position in small heart pumps for cardiac surgeries. We think the available possible total market (TAM) for these pumps could be as much as an estimated 500 thousand units globally over time, although we don’t expect Abiomed to capture all of that market, as few companies ever do that and competition almost always surfaces at some point.
We estimate their unit volumes just passed the 24,000 annualized run rate, so there is a long potential runway to this story. Their products are life savers in the hands of a well-trained cardiac surgeon, and they are expanding overseas.
The risks in a stock like this are usually competition, which is developing slowly, high statistical valuation that can lead to a correction in the stock, or some type of unexpected flaw in the technology, or poor execution. Since their devices are approved and used in the U.S., Japan, and Germany, among others, and they have great sales and profit momentum, we view the latter risk as low. The stock has had a great run so it could be a better one to buy on pullbacks.
IBD: What happened to Arista Networks that it’s 22% off its all-time high after beating earnings estimates? How do you handle a stock like this?
Dunkerley: Arista is a share taker in the fast-growing switch market for cloud infrastructure. However after a big run-up, the stock has pulled back, possibly due to what we perceive as conservative guidance by management. We think Arista’s advantages are in their software and management expertise, so we are confident in their long-term outlook. Enterprises are rapidly shifting workloads to the cloud and Arista’s networking software was built for this environment
and one to think about…
IBD: What’s your favorite stock at this point, the one with potential to deliver the strongest performance?
Dunkerley: For the near to intermediate term, I would have to go with DXC Technologies, our largest holding due to its low valuation and potential operating margin improvement, the potential for a spinoff, and or another special dividend. The global macroeconomic background is favorable for technology companies at the moment, with decent economic growth in many areas of the world, a change from a few years back.
Finally, technology spending is a capital expenditure which we think can do well in the middle to late part of an economic cycle, since we believe companies are more likely to spend on technology systems when they feel better about their financial prospects. The recent corporate tax cut in the U.S. helps reinforce our point of view on this, we believe. However, for the long-term, Abiomed may have the greatest upside potential due to reasons previously mentioned.