Even more impressive than running a top-performing mutual fund is overseeing two of them.
Ankur Crawford, who co-manages the top-1% Alger Capital Appreciation Fund (ACAAX) and top-3% Alger Spectra Fund (SPECX), has done just that. The two funds are very similar, or “different flavors of the same process,” as Crawford put it in a recent interview.
Like many of this year’s top portfolio managers, Crawford presides over growth-focused funds. She does so by honing in on stocks undergoing transformational change, and while many of her peers may say the same about their strategies, their inferior results may suggest otherwise.
“Often, when there’s change, there is unrecognized opportunity by the market, in part because the market likes to think linearly,” Crawford told Business Insider. “So if you grew 10% last year, you’ll grow 10% next year, and you’ll grow 10% the year after. When you have big change, or what we call our ‘Industrial Revolution 4.0’ or this AI wave, things don’t move linearly anymore. And what you end up getting is a growth curve that is non-linear, that takes people by surprise.”
Artificial intelligence, of course, has arguably been the top story in markets in each of the last two years. The relatively narrow AI rally of 2023 has broadened out this year, Crawford noted, which is an encouraging sign for companies tied to that technology.
But many in markets believe that AI stocks’ feverish rally is running out of steam as investors rotate away from technology companies. Crawford is confident that’s not the case.
“There’s often an underestimation of the opportunity,” Crawford said, adding that AI can have a far greater impact that markets are pricing in
She later added: “We think we’re pretty early on in this AI cycle.”
How to find exceptional growth stocks
Crawford’s funds could be likened to fraternal twins, as they’re closely related but with a few key differences. The capital appreciation fund is long only and focused on large-cap growth stocks while the Spectra fund can short stocks that Crawford’s team finds unattractive and has a large-cap bias but could invest in companies of any size.
But both funds target two types of growth stocks, Crawford said: high-unit-volume powerhouses that control their industries, and established firms in the midst of a significant makeover.
“They’re usually market-dominant players; they’re changing their markets,” Crawford said of the former group. “Think Amazon in its early days or Google or Facebook or Meta in its early days.”
Conversely, firms in the latter group have already gone through an initial growth cycle but reinvent themselves in response to new competitors. The key for these companies is pivoting to a new business model or strategy that helps them re-accelerate their growth.
“Oftentimes, these are businesses that actually don’t trade at egregious multiples, but we think are underestimated in terms of their growth potential,” Crawford said.
To find attractive stocks in each of these categories, Crawford said she looks for attributes like significant pricing power that drives strong, sustainable growth on the top and bottom lines.
“We are not interested in a company that has 30% growth next year that goes to 0% the year after,” Crawford said. “So the durability of the growth is an important aspect.”
Crawford then builds models based on free cash flow and invests in those trading at attractive valuations. Instead of looking at how stocks are priced relative to their peers, she evaluates companies primarily based on the enterprise-value-to-free-cash-flow (EV/FCF) metric.
“Cash affords you a lot of flexibility,” Crawford said. “And the more cash you can generate, there’s so many different things you can do with it — either M&A, or buy your own stock back in times of duress, or pivot your business in a way that other companies or competitors can.”
6 top growth stocks to buy now
After outlining the strategy that her funds follow, Crawford named six stocks she’s bullish on that are in both funds. Below are those names along with the ticker, market capitalization, and thesis from Crawford for each.
