The $6.7 billion Invesco Discovery Mid Cap Growth Fund (OEGYX) is one of the very best mutual funds. It stays that way by keeping an eagle eye peeled for companies like Pool, West Pharmaceutical Services and Veeva Systems that are poised to notch strong growth.
"We specialize in premier growth companies that harness the power of compound growth, which I consider the strongest force in finance," said Ronald Zibelli, lead manager of the fund. "Premier growth companies tend to be leaders in their industries."
Many top-notch growth companies get that way by providing technological breakthroughs, Zibelli says. Those innovations enable customers to slash prices for their own goods or services. Sometimes they enable client enterprises to offer better or quicker goods and services.
How To Spot The Next Stock Market Winners
"We see the emergence of a whole host of exciting new markets driven by technology and innovation," said Zibelli, who was recently also named chief investment officer of U.S. growth equities for Invesco.
Best Mutual Funds: Diving Into Pool
How does Pool stock help make Discovery Mid Cap Growth one of the best mutual funds? Pool's main business is selling swimming pool-related products. The company also sells irrigation and landscaping products, as well as outdoor products such as lighting, grills and hardscape products.
The company benefits from two tailwinds. One is created by coronavirus pandemic. "People have stayed home during the pandemic and paid more attention to home life," Zibelli said. That translated into families investing in home swimming pools and related backyard equipment and supplies.
Even once the Covid-19 pandemic fades, Zibelli expects Pool stock to make waves. "We're focusing on companies that we feel will benefit from a continued economic recovery," he said. "And that includes companies involved with the whole housing ecosystem, such as Pool. They benefit from extremely low interest rates."
Zibelli said, "They are the No. 1 distributor of pool equipment and supplies. They have something like 60% recurring annual revenues. They've outperformed for 10 years. With the pandemic, their fundamentals got even better. While many brick-and-mortar retailers have been disrupted, Pool executed and produced solid growth. Their backlog extends through next year."
Pool reported earnings per share growth of 3%, 20%, 23% and 47% the past four quarters. "The latest quarterly result is well above its trend line and not sustainable," Zibelli said. "But it shows how strong the market for their products has become."
How West Pharmaceutical Helps Make This One Of The Best Mutual Funds
West Pharmaceutical is another stock that helps make Discovery Mid Cap Growth one of the best mutual funds.
West Pharma makes syringes and other parts, systems and packaging for drug delivery injections. It stands to benefit from development of a vaccine for prevention of Covid-19, the disease caused by the coronavirus.
And the company makes drug delivery systems for several companies that are searching for vaccines.
It is also benefiting from development of numerous drugs based on advances in genomics research.
"They have a 70% share of injectable drug delivery components," Zibelli said. "They're an oligopoly. Their high share gives them pricing power. They're a way to invest in the growth of biopharma without the risk of clinical trial outcomes."
West Pharmaceutical: Parts For Syringes, Not Pills
One growth driver is the increasing use of so-called large molecule biologics. That's the industry name for modern treatments that are developed using recombinant DNA technology. The treatments are often large-molecule proteins. They are more target-specific than older, small molecule drugs. West Pharmaceutical benefits because large molecule treatments are often injectables rather than, say, pills, Zibelli says.
Betting on West is like betting on makers of picks and shovels for gold miners during the 1849 California Gold Rush. Only a relatively small number of miners struck it rich. Investing in makers of picks and shovels would have been less risky. "This is a company that made 4 billion vaccine units last year at 4 cents apiece, so that's like selling a lot of picks and shovels," Zibelli said.
A second driver is the shift from sole reliance on contract manufacturing for makers of treatments. Now its businesses include making its own proprietary products that were developed in-house from other enterprises' designs.
Veeva Brings Cloud Services To Life Sciences
Veeva Systems is another stock that makes this one of the best mutual funds. Its software helps customers manage sales and operations as well as comply with regulations.
Its early focus was in life sciences. Now the company's success within that area is broad.
Veeva's main offering in that space is called Vault. That's a cloud-based content management platform and suite of applications that provides life sciences companies with a single depository of documents and data. It reduces complexity for customers, and enables customers to improve efficiency.
"It's all part of the digitization of the life sciences industry," Zibelli said. "Veeva enables companies that conduct clinical trials and manage vast quantities of data a more automated way to do that."
In addition, Veeva has expanded beyond its initial focus on customer relationship management software in life sciences. Veeva has pushed into areas such as consumer packaged goods and chemicals.
Whatever the field of application, a key benefit for Veeva is how the company sells its service. "It's the software as a service (SaaS) business model," Zibelli said. "The customer signs up for a subscription. The revenue becomes visible and predictable."
What Makes Discovery Mid Cap Growth One Of The Best Mutual Funds
In what way is Discovery Mid Cap Growth one of the best mutual funds? The fund is a 2020 IBD Best Mutual Funds Award winner, having topped the S&P 500 in calendar 2019 as well as over the three, five and 10 years ended Dec. 31 on an average-annual-return basis.
Year to date going into Wednesday, the fund was on track to repeat as an IBD Best Mutual Funds Award winner with a return of 24.39% vs. the S&P 500's 11.49%. The fund's midcap growth rivals tracked by Morningstar Direct averaged 23.03%.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and active mutual fund managers who consistently outperform the market.
