SAN JOSE, Calif. -- No one need wave a red cape in front of David Alger -- he's already a raging bull. He says the stock market is neither overvalued nor facing a significant correction, and that a recession is nowhere in sight.
"The stock market . . . might even be considered underpriced considering how low long-term interest rates are," insists Mr. Alger, 51. "Most important, market tops are always characterized by tremendous euphoria, and I see none of that."
His views might offer solace in the wake of the market's sell-off Tuesday and Wednesday -- the Dow plummeted over 100 points in two days, the biggest drop this year.
And he usually knows what he's talking about. His mutual fund, )) Alger Growth Portfolio, is superlative.
Reflecting Mr. Alger's knack for picking and keeping big-cap growth stocks, Alger Growth (800-992-3863) is one of only 37 among 824 growth funds tracked by Morningstar Mutual Funds with a coveted five-star rating.
This year, through July 13, it returned 34.3 percent, ranking No.18 among 565 growth funds tracked by Lipper Analytical Services.
Since its inception in November 1986, it has generated an average annual return of 16.1 percent, ranking No. 16 among 153 growth funds tracked by Lipper through that period. By comparison, the average growth fund returned less than 12.2 percent annually.
Mr. Alger's philosophy would appear to be similar to that of other growth fund managers. He seeks high-growth stocks -- those whose sales and earnings can grow at least 15 percent annually for several years -- and stocks undergoing a "life-cycle change" and hence on the verge of doing as well, if not better. The earnings of his average holding this year are growing 35 percent, about double the growth of the S&P; 500.
What makes Mr. Alger different is his zeal for growth stocks. He started working for his older brother, Fred, at New York-based Fred Alger Management in 1971, and he was awed by the growth of the Nifty 50 back then. Price/earnings multiples of 50 and higher were common, and Mr. Alger believes they can someday return.
Growth stocks, he says, lost almost all of their premium in recent years because of the election of Bill Clinton, who was widely viewed as anti-capitalist. Another negative was a steady series of Federal Reserve interest rate increases throughout 1994 and early 1995.
Now, though, that premium is starting to return, especially among technology stocks. Mr. Alger says it's because rates have stopped rising and a Republican-controlled Congress is neutralizing Mr. Clinton.
The bottom line: We should see a return to the low end of historical growth stock premiums -- 1.5 to 2.5 times the S&P;'s multiple -- over the next couple of years.
Technology stocks, including Intel, Applied Materials, Cisco Systems, Hewlett-Packard and LSI Logic, are nearly 43 percent of Mr. Alger's 65-stock portfolio.
"Some people describe Silicon Valley as the Athens of the 1990s," Mr. Alger says. "That may be exaggerated, but Silicon Valley is certainly where most of the great industrial thought is taking place in our nation today."
He's high on technology stocks, health care stocks and a potpourri of other growth issues because of the strong likelihood of continuing strong earnings gains and reasonable valuations.
What do the experts say about Alger Growth?
"There's nothing about this fund that isn't spectacular," says Don Phillips, publisher of Morningstar Mutual Funds. "David Alger is an extreme, die-hard growth investor, and that's relatively rare. This fund is a wonderful choice for investors who are looking for serious growth stock exposure."
Mr. Alger does have lingering concerns about a potential blowup in the Middle East that could push oil prices sky high. That probably would spark a domino effect of rising inflation, rising interest rates and declining stock prices.
But Mr. Alger says there's no reason to think this will happen anytime soon. "Until people are saying this is the biggest bull market ever, I won't worry," he says.