Bull Market Is Back for Spahr: Five Spot

• ByGregg Greenberg, TheStreet.com Staff Reporter
• On 1:00 am EDT, Tuesday August 25, 2009

MINNEAPOLIS (TheStreet) -- Laton Spahr, co-manager of the RiverSource Diversified Equity Income Fund, says the bull market is back and technology will lead stocks higher.

The fund, which gets four stars from Morningstar, has risen 15% year-to-date, keeping pace with the S&P 500 Index. Over past five years, the RiverSource Diversified Equity Income fund has returned an annual average of 2.7%, better than 85% of its Morningstar peers.

Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks in five fast and furious questions.

Are you a bull or bear?

Spahr: Definitely a bull. I believe the economy has reached the tipping point of a positive feedback loop that should result in above average earnings growth for the next couple of years. Taking into account the low interest rate environment, valuations still seem to discount more conservative growth than we expect.

What is your top stock pick?

Spahr: Hewlett-Packard is our number one pick. It's commonly thought of as a relatively defensive "integration" play within the IT sector. The big surprise over the next year will be the strong profit leverage that will be demonstrated as businesses increase spending and past acquisitions begin to deliver revenue synergies.

What is your top "beneath the radar" stock pick?

Spahr: XL Capital is our sleeper. A near casualty of the financial crises, XL has emerged with a more conservative balance sheet that will allow them to re-establish their strong insurance and re-insurance franchise to growth book value. The stock still reflects a discount to book value related to the trauma of 2008, as the business stabilizes, the stock should again trade at a premium to book.

What is your favorite sector?

Spahr: Technology is our favorite now. It's cheaper than most of the market based on free cash flow. There's strong profit to leverage to global economic improvement. There's clean balance sheets. It's returning from a decade in "growth stock purgatory."

What sector or stock would you avoid?

Spahr: We are wary of consumer staples companies. Decades of margin expansion will be challenged by a more constrained domestic consumer and higher input costs. Relatively high valuations are the result of low volatility businesses, however as growth fades the valuation premium will fade with it.

-- Reported by Gregg Greenberg in New York.

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