Five Spot: Needham's Retzler Avoids Airlines

• ByGregg Greenberg, TheStreet.com Staff Reporter
• On 8:12 am EDT, Tuesday July 7, 2009

Chris Retzler, manager, of the $8 million Needham Small Cap Growth Fund, says he's avoiding the airline industry because he expects oil prices to rise as the economy recovers.

The fund is rated five stars by Morningstar, the research firm's highest rating. The fund is up 20% this year, outperforming the Russell 200 Index, which tracks small companies. It has lost 8% annually, on average, in the past three years, while the Russell has lost 28%.

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?

Retzler: I am a cautious bear who is concerned that the market has moved too far too quickly without the appropriate follow through growth. Higher energy and interest rates may slow the growth of any green shoots that have developed. The Asian stimulus plan has had a much greater impact so far and we have yet to see any great benefit here at home.

What is your top stock pick?

Retzler: IPG Photonics is a great fiber laser company that should really benefit in an improving economy. They are taking market share from traditional laser companies and are increasing their penetration into new industries and products.

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

Retzler: MKS Instruments is a cash flow story with exposure to the recovery in the semiconductor industry. Although the semiconductor industry has benefited from inventory replenishment, MKS Instruments is well positioned for a longer-term recovery. Its exposure to the solar space also makes it a sleeper pick.

What is your favorite sector?

Retzler: We have really been excited with the development in the storage and storage-related industries. The rise of importance in solid-state drives, with makers like STEC, and the continued strength in the hard-disk drive, and companies like Seagate Technology made these areas our best performers. We also like the equipment suppliers to these industries like Xyratex.

What sector or stock would you avoid?

Retzler: I would refrain from industries that have high union exposures, significant leverage and large pension obligations. One industry that I avoid on a long side is the airline transportation industry which is also exposed to higher energy prices, which should eventually rise in a recovering economy.

Buzz up!