One fund manager says it's time to buy when the chips are down - way down.

One fund manager says it's time to buy when the chips are down - way down.

NEW YORK (Fortune) -- Chris McHugh, manager of Turner Midcap Growth Fund, thinks it's time for investors to get back into buying mode and take on a longer-term view of the market.
"Historically you want to buy when things look absolutely at their worst," he says. "The traditional investor unfortunately always sells at the bottom and buys at the top."
While there are risks, he believes investors should accumulate during the dips if they don't want to miss out. For his fund, McHugh says that means buying high-quality growth names (like Kohl's (KSS, Fortune 500), its top holding), companies positioned to take market share, and early-cycle businesses that are the first to rally when the market bottoms.
"I think that's the right combination to be looking at to take advantage of very depressed valuation levels from a longer-term perspective in the marketplace," he says.
The Turner Midcap Growth Fund is up 14.94% year to date, beating out its category returns of 11.13% for the same period, according to Morningstar. The fund has dropped about 37% over a one-year period, but over five years it has fallen 0.53%, just beating out its category (-0.87%). Launched in 1996, the fund has about $840 million in assets.
McHugh places a special priority on earnings - both in their sustainability and quality. Crucial to him is that a company beats and exceeds expectations.
"At the end of the day, that's really the essence of the stock market," he says. "It all comes down to earnings, or lack thereof."
The fund's top holding in the "market-share gainer" category is McAfee (MFE), which provides computer security - one of the last tech items to get cut when a company is trimming costs, according to McHugh.
Another market-share gainer is Best Buy (BBY, Fortune 500), which he thinks is going to "take significant advantage of Circuit City's demise." McHugh believes the retailer can be stronger on its pricing strategy, which leads to better margins and earnings over time.
Early-cycle stocks, including housing, semiconductors, retailing, and certain industrials, will outperform when the economy improves, he says. In retail, McHugh likes Urban Outfitters (URBN) and Guess (GES), which he says have stayed on top of fashion trends and moved inventory, which means less discounting over the long run.
"There are some things that the consumer doesn't want to let go of," he says. "I think fashion and clothing are still high on the list as opposed to home furnishings or appliances."
McHugh's investment process involves three components - examining fundamentals, which included more than 1,000 meetings with management in 2008; technical analysis of stock charts to help with timing entry or exit points; and a quantitative component that examines 70 different factors considered predicative of future stock price performance.
Turner's 21 analysts divide the market into broad sectors and each specialize in one of five areas: healthcare, financial services, technology, consumer, and cyclical. While cyclical companies are not typically considered growth businesses, McHugh says one of the fund's strengths is being able to find growth stocks in what have not traditionally been considered growth sectors.
In the energy sector, which the fund categorizes as cyclical, McHugh likes natural gas companies, as he expects a price recovery in 2010 or 2011.
Southwestern Energy (SWN) and Range Resources (RRC), two of his long-time holdings, have grown production at more than four times the rate for the overall sector, he says. The two companies are big players in the U.S. oil shale industry, which he notes is the nation's fastest growing production area. Their production costs per barrel are also less than the industry average.
One of his fund's top holdings in tech - and one of its top 10 in the portfolio - is F5 Networks (FFIV), which produces software and hardware to make businesses' networks secure and more efficient. When its clients, which include Amazon, Microsoft, and Oracle, outgrow their networking needs, McHugh says, F5 allows them to expand without disrupting their operations.

http://money.cnn.com/2009/05/06/pf/growth_stocks_invest.fortune/index.htm